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Accounting Cycle

By: Cyron Badoles


What is Accounting cycle?
• Accounting cycle is a step by step process or procedure
performed in a systematic manner of recording and
summarizing all accountable events of a company or an
organization within one year or within the accounting
period.
Steps in Accounting cycle
1. Analyze documents and transactions
2. Preparing Journal Entries
3. Posting to Ledger
4. Preparing Unadjusted Trial Balance
5. Preparing Adjusting Entries
6. Preparing Adjusted Trial Balance
7. Preparing Financial Statements
8. Preparing Closing Entries
9. Preparing Post Closing Trial Balance
10. Preparing Reversing Entries
1. Analyze documents and transactions
• We should analyze the transactions that took place during the accounting
period. We need to take a look at our source documents, like the receipts
and any source of record that proves that a transaction took place. After
reviewing those we can now identify what had taken place. Moreover, we
can identify what accounts were impacted by these transactions and if
they have increased or decreased.
2. Preparing Journal Entries
• This is when we start the book keeping of accounting. We are
going to journalize (recording journal entries) those transactions
in the source documents chronologically. We can have at least
two accounts, one debit and one credit or we may have more.
3. Posting to Ledger
• When posting into the ledger, we take each piece of the entry in the
journal and post it on the corresponding accounts in the ledger.
We have two kinds of ledger:
• General ledger- record containing all accounts (with amounts) for
business; also called ledger
• Subsidiary ledger- is a list of individual subaccounts and amounts with
a common characteristic; linked to a controlling account in the general
ledger
4. Preparing Unadjusted Trial Balance

• This the fourth step in the accounting cycle. After posting


the journal entries in the ledger accounts, the unadjusted
trial balance can be prepared. It is displayed in three
columns: a column for account names, debits and credits.
5. Preparing Adjusting Entries

• It is important to ensure that at the end of the


accounting period to adjust the income and
expense accounts so that they comply to the
accrual concept of accounting.
6. Preparing Adjusted Trial Balance

• Adjusted Trial Balance is the sixth step in the accounting


cycle and the last step before preparing the financial
statements. It is the listing of all the accounts that will appear
on the financial statements after the adjustments had been
done.
7. Preparing Financial Statements

• It is the most important step because it represents the purpose of the


financial accounting. Moreover, these statements are the end product of the
accounting system of the company. These financial statements includes
Balance Sheet, Income Statement, Capital Statement and Cash Flow
Statement.
8. Preparing Closing Entries

• In preparing closing entries, we transfer all the balances


of the nominal accounts to the permanent accounts. So
that the balances of these nominal accounts will begin
with zero at the beginning of the accounting period.
9. Preparing Post Closing Trial Balance

• Here, we have the list of all accounts and their balances after
the closing entries have been journalized and posted to the
ledger. Additionally, it is the list of all permanent accounts
that still have balances after the closing entries have been
made.
10. Preparing Reversing Entries
• Reversing entries are made on the first day of accounting period to remove
accrual adjusting entries that were made at the end of the previous
accounting period. These accounts are:
1. Accrued Expenses
2. Accrued Revenue
3. Prepaid Expense-Expense Method
4. Unearned Revenue- Revenue Method
Three Types of Business

1. Service
2. Merchandising
3. Manufacturing
Service

• A service is a type of business provides intangible


products. Service type firms offer professional
skills, expertise, advice, and other similar products.
Merchandising

• This type of business buys products at wholesale price and sells


the same at retail price. They are known as “buy and sell”
business. They make profit by selling the products at prices higher
than their purchase costs.
Manufacturing Business

• A manufacturing business buys products with the


intention of using them as materials in making new
product. Thus, there is a transformation of the products
purchased.
Forms of Business Organization
• Sole Proprietor
• Partnership
• One person Corporation
• Corporation
• Cooperative
• Joint Venture
Sole Proprietor

• It is the most common form of business organization. It is easy


to form and offers complete control to the owner but the
business owner is also personally liable for all financial obligations
and debts of the business.
Partnership

• It is the relationship existing between two or more persons who


join to carry on a trade or business. Each person contributes
money, property, labor or skill and expects to share in profits and
losses of the business.
One-Person Corporation

• One Person Corporation is a corporation that has only


one stockholder, and be able to enjoy the rights and
privileges that traditionally organized corporations are
entitled to.
Corporation

• A corporate structure is more complex than other


business structures. It requires complying with more
regulations and tax requirements.
Cooperative

• Is an autonomous association of persons united


voluntarily to meet their common economic, social and
cultural needs and aspirations through a jointly-owned
and democratically-controlled enterprise.
Joint Venture

• Is a business entity created by two or more parties,


generally characterized by shared ownership, shared
returns and risks, and shared governance.
That’s all
Thank You

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