Xacc 280 Wk 6 9 Steps of Accounting Cycle

There are nine steps of the accounting cycle they are as follows:

1. Analyze business transactions: These are analyzed in relation to their effect on the financial position of the company.

2. Journalize the transactions: After collecting and analyzing the information obtained in the analyze business transactions step, the information is then entered into the general journal.

3. Post to ledger accounts: The transactions are then posted to the general ledger.

4. Prepare a trial balance: This step involves preparing an unadjusted trial balance to test the equality of debits and credits that were recorded in the general ledger.

5. Journalize and post adjusting entries (Prepayments/Accruals): This step bring accounts to their proper balances after considering transactions and/or events not yet recorded.

6. Prepare an adjusted trial balance: As with step number four, this step also involves preparing an adjusted trial balance step to test the equality of debits and credits.

7. Prepare financial statements (Income statement, retained earnings statement & balance sheet): This step involves using the corrected balances from the adjusted trial balance to prepare a statement.

8. Journalize and post-closing entries: This step involves closing out revenue and expense balances at the end of each period. This keeps them from being added to or commingled with of another period.

9. Prepare a post-closing trial balance: This step seeks to determines if all revenue and expense accounts have been closed properly and it tests the equality of debit and credit balances of all the balance sheet accounts (Putra, L.,2009).

These are the main accounting steps involved in the cycle, however there are also two optional steps an accounting may use as well. One is reversing entries this step would occur between steps nine and one. Correcting entries, which is avoidable step, in another optional step. It is used to correct errors if any are discovered (Weygandt, Kimmel,&...