The Accounting Cycle

The accounting cycle is a methodical set of rules to ensure the accuracy and conformity of financial statements. The accounting cycle begins with the analysis of transactions recorded on source documents such as invoices and checks; it ends with the completion of a post-closing trial balance. This cycle consists of the following steps: 1. !. #. $. &. '. (. ). Analyze and ournalize transactions. "ost the ournal entries to the general ledger accounts. "repare a trial balance. %ournalize and post the ad usting entries. "repare an ad usted trial balance. "repare financial statements. %ournalize and post the closing entries. "repare a post-closing trial balance.

*teps one and two occur as often as needed during an accounting period. *teps three+ four+ five+ and si, occur at the end of each accounting period. *teps seven and eight usually occur only at the end of each fiscal year+ but these steps may be completed at the end of each accounting period if the company chooses to do so. -f a work sheet is used+ steps three+ four+ and five are initially recorded on the work sheet+ which makes it possible to complete step si, more .uickly+ but all ad usting entries on the work sheet must be ournalized and posted before closing entries are made.

Chart of accounts
A chart of accounts /01A2 is a created list of the accounts used by a business entity to define each class of items for which money or the e.uivalent is spent or received. -t is used to organize the finances of the entity and to segregate e,penditures+ revenue+ assets and liabilities in order to give interested parties a better understanding of the financial health of the entity. The list can be numerical+ alphabetic+ or alpha-numeric. The structure and headings of accounts should assist in consistent posting of transactions. 3ach nominal ledger account is uni.ue to allow its ledger to be located. The list is typically arranged in the order of the customary appearance of accounts in the financial statements+ balance sheet accounts followed by profit and loss accounts.

Simple Chart of Accounts
Group headings - *ales+ 0ost of 4oods *old+ 5irect 3,penses+ Administration 3,penses+ *elling 3,penses+ 5istribution 3,penses+ 3stablishment 3,penses+ 6inancial 3,penses. 7ithin each of these headings will be the individual nominal ledger accounts that make up the chart of accounts. 3stablishment e,penses may consist of rent+ rates+ and repairs Balance Sheet Accounts Asset Accounts: 0ash+ 8ank Accounts+ Accounts 9eceivable /5ebtors2+ "repaid 3,penses+ -nventory /*tock on :and2+ ;and+ 8uildings+ <ehicles = 3.uipment+ -nvestments = *tocks+ Accumulated 5epreciation and 1ther Assets. ;iability Accounts: Accounts "ayable /0reditors2+ 0redit 0ards+ Ta, "ayable+ 3mployment 3,penses "ayable+ 8ank ;oans. *tockholders> 3.uity Accounts: 0ommon *tock /*hare 0apital2+ 9etained 3arnings /9evenue 9eserves2+ 5rawings. Profit & Loss accounts 9evenue Accounts: *ales 9evenue+ *ales 9eturns = Allowances+ *ales 5iscounts+ -nterest -ncome+ 0ost of 4oods *old Accounts:

org@wiki@0hartAofAaccounts . 1ffice 3.topicArticle-d-!1B)1+article-d-!1B!).pense+ 5epreciation 3.pense+ ?tilities 3.pense Accounts: Advertising 3.pense+ 8ank 6ees+ 0lient 3.pense "urchase 9eturns = Allowances.pense http:@@www.pense+ 9ent 3."urchases and sales 3.pense All sales 3. 3. 3.pense+ -ncome Ta.pense+ "ayroll Ta.html http:@@en.pense+ "ayroll 3.

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