Question

Elaborate the eight (8) steps in the accounting cycle. [10 marks]

Answer 1

The eight steps of Accounting Cycle:

1.To start with it is necessary to have transactions to record in the books . Every transaction needs to be properly recorded in the company's books..

2.Next step is to Jounalize the transactions according to double entry accounting system.Point of sale technology may also be used bu expenses need to be tracked.Either Cash basis or accrual basis of entries are passed depending on the time of passing enteries.Ecah entry has a equal and debit .

3.Once enteries are passed they are posted in their respective accounts in general ledger.Legders show breakdown of activities accountwise.It helps to verify the financlal position and accounts status at given point of time.

4.An Unadjusted Trial Balance is prepared based on the account balances in ledger .It is then carried forward to worksheet for further analysis.

5.A worksheet is created toensure that debits equal credits .i case of differences correction need to be made.

6.Adjusting enteries are passed to give effect to accrual enteries to reflect custoff period.

7.After all adjustments Financial statements are created in the form of Income statement , balance sheet, cashflow statement etc.

8.Finally closing enteries are passed to close all temporary accounts to Retained earning or Owner's capital at closing date .Closing statements provide report for analysis of performance over a period.