What are the 6 short steps of the accounting cycle
1. Analyze transactions: Identify and analyze all the business transactions that occur during a specific period.
2. Journalize transactions: Record the analyzed transactions in the general journal, following the double-entry system.
3. Post to the ledger: Transfer the journal entries to the respective accounts in the general ledger.
4. Prepare a trial balance: Create a trial balance by listing all the accounts and their balances to ensure that debits equal credits.
5. Adjustments: Make any necessary adjusting entries to account for accruals, deferrals, estimates, and errors.
6. Prepare financial statements: Use the adjusted trial balance to prepare the income statement, balance sheet, statement of cash flows, and statement of changes in equity.
The 6 short steps of the accounting cycle are as follows:
1. Analyze Transactions: In this step, all financial transactions are analyzed and recorded in the accounting system. The relevant information from business activities is identified, measured, and recorded.
2. Journalize: After the transactions are analyzed, they are then recorded in the general journal. Each transaction is recorded with a double-entry system, where debit entries equal credit entries to maintain the balance.
3. Post to Ledger: Once the transactions are journalized, they are then posted or transferred to the respective accounts in the general ledger. This step involves updating the balances of the specific accounts affected by the transactions.
4. Trial Balance: After posting the transactions to the ledger, a trial balance is prepared. The trial balance lists all the accounts along with their respective debit and credit balances. It ensures that the total debits equals the total credits, leading to balanced books.
5. Adjusting Entries: During the accounting period, certain transactions or events may require adjustments to be made. Adjusting entries are made to update accounts for the effects of accrued expenses, accrued revenues, prepayments, and depreciation, among others. These adjustments ensure that the financial statements reflect the appropriate income and expenses for the period.
6. Financial Statements: The final step of the accounting cycle is the preparation of financial statements. Based on the adjusted trial balance, the income statement, balance sheet, and cash flow statement are prepared to present the financial position and performance of the company. These statements are used by stakeholders, such as investors and creditors, to assess the organization's financial health and make informed decisions.