The Accounting Cycle - Essay Example

5) Preparation of an adjusted trial balance. 6) Using the information given in the adjusted trial balance, preparation of the financial statements. 7) Entering closing entries into the general journal and then to the general ledger. 8) Preparation of the post closing trial balance. The transaction must be identified from an authentic or original source. These sources can include deposit slips, invoices, purchase orders etc. This steps provides important information about the date on which the transaction took place, the amount of transaction, description and, if it is possible, the name and contact information of the party with which the dealings took place.

In this step, the accounts that are being affected because of the transaction are determined. The effect includes either an increase or a decrease. The amount by which they are being affected must also be determined. The transaction must be then entered into the journal. This must be done on both, the credit and the debit sides of the journal. There are some important facts that must be considered. A general journal is always maintained in the chronological order. Journal may refer to the general journal, the sales journal, cash receipts journal and so on.

Entries are posted in the trial balance. A trial balance presents a list of all accounts (transactions) and their balances. The purpose of this step is to verify whether or not the sum of the credit and debit sides is equal. If they are unequal, the trial balance must be adjusted. The trial balance that has unequal sides can mean that there is a problem. This step involves preparation and posting of deferred and accrued transactions to the T- ledger accounts journals. Adjusting entries are usually made on the last day of the given accounting period.

The reason for this is to ensure that the financial statements reflect the revenue earned during the given period