Accting cycle

School: Blue Ridge Community College - Course: ACC 120 - Subject: Accounting

1. Analyzing and Recording Transactions in the Journal Step 1. Carefully read the description of the transaction to determine whether an asset, liability, owner's equity, revenue, expense, or drawing account is affected. Step 2. For each account affected by the transaction, determine whether the account increases or decreases. Step 3. Determine whether each increase or decrease should be recorded as a debit or a credit, following the rules of debit and credit shown in Exhibit 3 of Chapter 2. Step 4. Record the transaction using a journal entry. 2. Posting Transactions to the Ledger Step 1. The date is entered in the Date column of the account. Step 2. The amount is entered in the Debit or Credit column of the account. Step 3. The journal page number is entered in the Posting Reference column. Step 4. The account number is entered in the Posting Reference (Post. Ref.) column in the journal. 3. Preparing an Unadjusted Trial Balance

4. Assembling and Analyzing Adjustment Data Before the financial statements can be prepared, the accounts must be updated. The four types of accounts that normally require updating include prepaid expenses, unearned revenue, accrued revenue, and accrued expenses. In addition, depreciation expense must be recorded for fixed assets other than land. 5. Preparing an Optional End-of-Period Spreadsheet 6. Journalizing and Posting Adjusting Entries 7. Preparing an Adjusted Trial Balance 8. Preparing the Financial Statements income statement is prepared first, followed by the statement of owner's equity and then the balance sheet. can be prepared directly from the adjusted trial balance, the end-of-period spreadsheet, or the ledger 9. Journalizing and Posting Closing Entries First Closing Entry: Debit each revenue account for its balance, credit each expense account for its balance, and credit (net income) or debit (net loss) the owner's capital account. Second Closing Entry: Debit the owner's capital account for the balance of the drawing account and credit the drawing account. 10. Preparing a Post-Closing Trial Balance