Identify and describe each step in the Accounting Cycle.

Expert Solution

Accounting Cycle encompasses the entire Accounting procedure beginning from initially identifying accounting transactions to finally preparing the trial balance.

Identifying appropriate financial transactions- Only transactions that have a bearing on business and can be measured in monetary terms are taken into the accounting cycle.
Recording into Journal- Each transaction has two sides viz Debit and Credit. Thus transactions are recorded into Journal at first. Journal is also called the book of original entry.
Ledger posting- The transactions entered into journal are transferred to their respective ledger accounts.
Unadjusted Trial Balance:To ascertain the correctness of debits/credits in posting of entries an unadjusted trial balance is prepared. Errors, if any are rectified by way of correcting entries.
Adjusting Entries: Entries for accrual, prepaid, Outstanding, deferrals, depreciation, allowances etc are made.
Financial statements: After adjusting entries, the next process is that of preparation of financial statements viz. Balance Sheet, Profit &loss account, Cash Flow statement.
Closing entries: These entries are made to various accounts of income/expenses which are temporal in nature by transferring them to Income statement.
Post Closing Trial balance: it contains real accounts only.

ekkarill92 answered 10 months ago

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