Nine Madatory Steps in Accounting Cycle

There are nine mandatory steps in the accounting cycle and additional optional step. The tens steps of the accounting cycle are: (1) analyze transactions, (2) journalize, (3) post, (4) prepare an unadjusted trial balance, (5) adjust accounts, (6) prepare an adjusted trial balance, (7) prepare statements, (8) close, (9) prepare a post-closing trial balance, and (10) prepare (optional) reversing entries (Wild, Larson & Chiapetta, 2007, p. 153).

Analyzing transactions consists of looking over accounts to check for errors and accuracy. Step 2, journaling, consists of recording the information presented in accounts including debits and credits in a journal. Posting is the third step in which the information on the journal is transferred over to the general ledger. Preparing the unadjusted trial balance, the fourth step, consists of compiling a summary of accounts and amounts listed on the ledger. Step five, adjusting accounts, simply means making sure everything is current and up to date, and rerecording the adjusted information unto the ledger. Preparing the adjusted trial balance is similar to step four, accept the accounts that are being summarized are the adjusted ledger accounts. Step seven, preparing financial statements consists of using the adjusted trial balance to prepare financial statements to include income statements, statements of owner’s equity, balance sheets, and statements of cash flows. Closing temporary accounts is the eighth step. The final step of the accounting cycle is preparing a post-closing trial balance by making sure the closing procedures were done accurately. The optional step that can follow preparing a post-closing trail balance is reversing entries. Reversing entries consists of reversing particular adjustments in the period that will come next (Wild, et al., 2007, p. 144).

References

Wild, J., Larson, K., & Chiapetta, B. (2007). Fundamental accounting principles. (18 ed.). Boston, MA: McGraw-Hill.