Question

What are the phases in an accounting cycle?

Answer 1

1. Identifying Transactions: The cycle begins by gathering receipts, invoices, and bills to identify measurable financial events.
2. Recording in Journal: Transactions are recorded chronologically in the book of original entry using double-entry rules.
3. Posting to Ledger: Journal entries are transferred and classified into individual accounts called ledgers.
4. Preparing Unadjusted Trial Balance: The debit and credit balances of all ledgers are listed to check arithmetical accuracy.
5. Passing Adjusting Entries: Journal entries are passed at the end of the period for accrued items, prepayments, and depreciation.
6. Preparing Adjusted Trial Balance: A final trial balance is generated to verify balances after incorporating all adjusting entries.
7. Preparing Financial Statements: The profit and loss account, balance sheet, and cash flow statement are generated from the adjusted figures.
8. Closing the Books: Temporary revenue and expense account balances are transferred to the trading and profit and loss account to prepare for the next financial period.