ACCOUNTING CYCLE:-There is ebb and the flow to every industry. In accounting, the ebb and flow is the accounting cycle. The term accounting cycle refers to the specific steps that are involved completing the accounting process. The cycle is like a circle. It begins at one point and revolves through specific steps, before starting again at the same point and then repeating those same steps.
The length of the accounting cycle varies from company to company. It may be monthly, quarterly, semiannually, or annually depending on when the financial statements of the company are published. Regardless of the timing of the accounting cycle, the processes involved remain the same.
ACCOUNTING CYCLE STEPS
Financial transaction start the process. Transaction can include the sale or return of a produce, the purchase of supplies for business activities, or any other financial activity that involves the exchange of the company’s assets, the establishment or payoff of a debt, or the deposit from or payout of money to the company’s owners.
2. Journal entries
The transaction in listed in the appropriate journal, maintaining the journal’ chronological order of transactions. The journal is also known as the “book of original entry” and is the first place a transaction is listed.
The transaction are posted to the account that it impacts. These accounts are part of the General Ledger, where you can find a summary of all the business’s accounts.
4. Trial balance
At the end of the accounting period (which may be month, quarter, or year depending on a business’s practices), you calculate a trial balance.
UNDERSTANDING OF ACCOUNTING CYCLE
Unfortunately, many times yours first calculation of the trail balance shows that the books aren’t in balance. If that’s the case you look for errors and make correction called adjustments, which are racked on a worksheet.
Adjustments are also made to account for the depreciation of assets and to adjust for one-time payments (such as insurance) that should allocated on a monthly basis to more accurately match monthly expenses with monthly revenues. After you make and record adjustments, you take another trail balance to be sure the accounts are in balance,
6. Adjusting journal entries
You post any corrections needed to the affected accounts once your trial balance shows the accounts will be balance once the adjustments needed made to be the accounts. You don’t need to make adjusting entries until the trail balance process in completed and all need corrections and adjustments have been identified.
7. Financial statements
You prepare the balance sheet and income statements using the corrected account balances.
8. Closing the books
You close the books for the revenue and expense accounts and begin the entire cycle again with zero balance in those accounts.