Accounting Cycle

Salman Yousaf
2013331

Definition
The term accounting cycle refers to the framework and
processes followed in each accounting period. The accounting
cycle begins with the identification of events and transactions,
and ends with the after-close trial balance.

Explanation
The accounting cycle is a conceptual framework that describes the process a
company goes through each accounting period. While the exact number and
description of the steps in the cycle is somewhat subjective, the core processes
include:
Journalization of Transactions: identification of events and transactions as they
occur and recording them using the proper journal entry.
Posting to Ledger: transferring the journal debits and credits to the proper ledger
accounts.
Trial Balance and Adjustments: includes the preparation of various worksheets to
prove debits equal credits, and perform adjusting entries such as accruals.
Preparing Financial Statements: assembly of accounting information to construct
the company's balance sheet, income statement, and statement of owner's equity.
Closing Accounts: reducing the balance of temporary accounts to zero in
preparation for the journalization of transactions associated with the next accounting
period.
After-Close Trial Balance: following the closing of accounts and adjustments, this
step proves that debits are still equal to credits.

An illustration of the accounting cycle appears below

Sam Redesigning Corporation

It is basically a redesigning business in which the
corporation can redesign or repair homes or office
lawns.
Gardens are also redesigned such as which kind of
flower should be where and which kind of flowers
will sit in the garden.
Opinion as well as provides redesigning services.

Journal entries to record the March transactions in the General Journal.

Date

General Journal
Description(Account Name)

1-Mar

cash

Debit

Credit

72,000

common stock

72,000

Issued stocks for cash

rent expense

4,500

cash

4,500

Paid the month rent with cash

prepaid insurance

3,300

cash

3,300

Paid a one year insurance in dvance

supplies

900

Accounts payable

900

purchased supplies on account

salaries expense

2,200

cash

2,200

Paid employees' salaries

1-Mar

1-Mar

7-Mar

10-Mar

equipment

9,000

cash

1,500

accounts payable

7,500

Purchased equipment part with cash and the rest on account

cash

4,896

Redesigning revenue

4,896

received cash for service provided

accounts payable

450

cash

450

paid creditors on account

cash

5,304

Redesigning revenue

5,304

received cash for service provided

Divedends

1,000

cash

1,000

payment of cash divedends

103,550

103,550

14-Mar

15-Mar

19-Mar

31-Mar

31-Mar

March journal entries to the following T-accounts and compute ending balances.

Cash

Redesigning Revenue

Beginning72000

10200

4896March15

March154896

5304March31

March315304

4500March1

3300March1

2200March10

1500March14

450March19

1000March31

Prepaid Insurance

69250
March13300

.275

Rent Expense
March14500

3025

4500

Supply
March7900

Salaries Expense
425

March102200

2200

475

Equipment

Insurance Expense

March149000

275

Accumulated Depreciation-Equipment

275

Supplies Expense

150

425

425

Accounts Payable

Depreciation Expense

900March7

150

7500March14

March19450

7950

Income Tax Payable

Income Tax Expense

795

795

150

795

Common Stock
720000Beginning

Income Summary

8345

1855

10200

Retained Earnings

1855

1000

855

Dividends
March311000

1000

Trial balance for March

Sam Redesigning Corporation

Trial Balance
March 31

DEBIT

CREDIT

Cash

69250

3300

900

9000

accounts payable

7950

Common Stock

72000

Redesigning revenue

10200

Rent expense

4500

Salaries expense

2200

Dividends

1000

90,150

90,150

Prepaid insurance
Supplies
Equipments

Adjusting entries using the following information in the General Journal

a) One month's insurance has expired.

b) The remaining inventory of supplies is Rs:475.

c) The estimated depreciation on equipment is
Rs:150.

d) The estimated income taxes are Rs:795.

The income tax reported on the income statement

is the income tax expense which pertains to the
revenues and expenses shown on the income
statement.
The income taxes to be paid in the near future are
reported as a current liability.
If a corporation has overpaid its income taxes, the
income taxes to be refunded by the government
are reported on the corporation's balance sheet as
a current asset.
There are also balance sheet accounts for
deferred income taxes. Deferred income taxes
arise when a revenue or expense item is reported
on the income tax return in a year that is different
from the year the item appears on the financial
statements.

Adjusting Entries

General Journal
Date

Description(Account Name)

Debit

Credit

Insurance expense

275

Prepaid insurance

275

supplies expense

425

supplies

425

depreciation expense

150

Accumlated depreciation

150

income tax expense

795

income tax payable

795

Adjusted trial balance are below.

Sam Redesigning Corporation

Adjusted Trial Balance
March 31

cash

69250

prepaid insurance

3025

supplies

475

equipment

9000

Accumlated depreciation on equipment

150

accounts payable

7950

Income tax payable

795

common stock

72000

Redesigning revenue

10200

rent expense

4500

salary expense

2200

Income tax expense

795

insurance expense

275

supplies expense

425

depreciation expense

150

dividends

1000

91095

91095

Sam Redesigning Corporation

Income Statement
For the Month Ending March 31

Revenues:

Redesigning Revenue

10200

Expenses:

Rent Expense

4,500

Salaries Expense

2,200

Insurance Expense

275

Supplies Expense

425

Depreciation Expense

150

Income Tax Expense

795

8,345

Net Income

1855

Total Expenses

Sam Redesigning Corporation

Statement of Retained Earnings

For the Month Ending March 31

Retained Earnings, March 1

Add: Net Income

1855

Subtotal

Less: Dividends

1000

Retained Earnings, March 31

855

Sam Redesigning Corporation

Balance Sheet
March 31
Assets:
Cash
Prepaid
Insurance
Supplies
Equipment
Less: Accum.
Depr.
Total
Assets

69250

3025
475
9000

150
81600

Liabilities:
Accounts Payable
Income Tax Payable
Total Liabilities
Stockholders'
Equity:
Common Stock
Retained Earnings
Total Stockholders'
Equity
Total Liabilities and
Stockholders'
Equity

7,950
795
8745

72,000
855

72855

81600

Closing entries at March 31 in the General Journal.

Trial Balance for closing entries.

Date
2014
31-Mar

General Journal
Description (Account Name)
service revenue
Income summary
(to close revenue account)
Income summary
rent expense
salary expense
income tax expense
Insurance expense
supplies expense
depreciation expense
(to close expense account)
Income summary
retained earnings
to close income to retained earnings
retained earnings
dividends
to close dividends to retained
earnings

Debit
10200

8345

1855

1000

Credit

10200

4500
2200
795
275
425
150

1855

1000

19545

19545

Sam Redesigning Corporation

Post-Closing Trial Balance
March 31

cash

69,250

3,025

supplies

475

equipent

9000

accumlated depreciation

150

accounts payable

7950

income tax payable

795

common stock

72000

retained earnings

855

81750

81750

prepaid insurance