Question

List the steps in the accounting cycle in their correct sequence:

1. Entries are made in the journal

2. A business transaction occurs

3. A trial balance is prepared

4. Entries are made in the ledger

Answer 1

1. A business transaction occurs

2. Entries are made in the journal

3. Entries are made in the ledger

4. A trial balance is prepared

The definition of accounting is "Accounting is the art of recording, classifying, and summarising in a significant manner and in terms of money, transactions and events which are in part atleast of financial character and iterpreting the results there of". Let's connect this definition to the above mentoned 4 steps.

Every transaction occuring in a business should have a financial character and could be interpreted in terms of money. Once a transaction occurs it is recorded in a journal as an accounting entry with a debit and corresponding credit. There will be a number such entries in the journal depending on the transactions. All these entries are then transferred to or posted to appropriate ledger accounts. It is simply a classifiaction based on the nature of transactions. Trial balance is the list of all the ledger accounts in a business. It contains value of all the ledger accounts and the corresponding balances.It is a summary of all debit and credit balances of the business transactions and a source document to prepare the financial statements.