Question

For this assignment please identify the 10 steps in the accounting cycle and explain the purpose of each step in a short paragraph. As you are writing please keep in mind that the question is asking for the PURPOSE of each step, not HOW it is completed! When thinking about the purpose of a step consider why we are completing it or what it tells us after it is completed.

1. Analyze source documents.

2.Journalize the transactions.

3.Post to the ledger accounts.

4.Prepare a trial balance.

5.Determine and prepare the needed adjustments on the work sheet.

6.Complete an end-of-period work sheet.

7.Journalize and post the adjusting entries.

8.Prepare an income statement, statement of owner’s equity, and balance sheet.

9.Journalize and post the closing entries.

10.Prepare a post-closing trial balance.

Answer 1

The purpose of the various steps in accounting cycle are as follows:

1. Analyze source documents: To identify the transactions which occured in the business.

2.Journalize the transactions: Transactions are journalised to desribe the transactions in brief and to know the cause of an event or transaction.

3.Post to the ledger accounts: Inorder to classify the accounting data into certain categories, these data which are entered in the Journal are posted to the ledger accounts.

4.Prepare a trial balance: To determine whether the debits and credits posted in the ledger are equal or not. By this step, it is easy to identify any errors or ommissions in the books of accounts.

5.Determine and prepare the needed adjustments on the work sheet: The main purpose of preparing these are to identify the necessary events or transactions which are to be adjusted.

6.Complete an end-of-period work sheet: The purpose is to consolidate the real expenses as they are spent based on the planned expense, this is used both for financial and tax purposes.

7.Journalize and post the adjusting entries: The purpose of journalizing the adjusting entries is to reflect the same in the financial statements.

8.Prepare an income statement, statement of owner’s equity, and balance sheet: Adjusted trial balance is used for the internal purpose in preparation of income statement and balance sheet as the adjustments of adjusting entries are also presented in Adjusted Trial Balance. Income STatements, statement of owners' equity and balance sheet are prepared to present the financial statements and to communicate the results of the company to the stakeholders.

9.Journalize and post the closing entries: These closing entries are the nominal accounts which need to be closed every fiscal year, these are to be transferred to retained earnings, to know the actual impact on the retained earnings because of the transactions took place in the year.

10.Prepare a post-closing trial balance: This is useful to know the ending balances of the accounts and easy to start the financial statements of the succeeding year, as these balances can be taken as opening balances of the succeeding year.