Introduction

The accounting cycle is one of the most important aspect of financial accounting. This would

ensure that the books of accounts are properly prepared and are accurate. This would also

ensure that the other stakeholders of the business are getting the right information. The

following section would explain the accounting cycle in detail. (Wild & Shaw, 2020)

1. Analyzing Business Transactions

This is the first step of the accounting entries. This is the stage where the different transactions

are identified. For example the sales would then be entered in the sales day book, while the

purchases of supplies would be entered in the purchase daybook. The cash transactions would

be entered in the cash book.

2. Journalizing the transactions

This is the stage where the basic accounting principle would need to be identified. There would

be a clear need to use the principal of debits and credits. This is the basic of accounting

principal when every transaction would always be either debited or credited. Thus for a sales of

AED5000 in cash would mean that the journal entry must be prepared to show that sales

account would be credited and the cash account would be debited.

3. Posting to the ledger accounts

The next step is the posting of the ledger accounts. The journal entries would then be used to

ensure that the entries are made on the debit and credit side of each of the accounts. This is

the basis of the ledger accounts which would be used for the preparation of all the other

accounts. Thus, continuing from the same example the sales account would have to be posted
with a credit of AED5000 while the cash account would be debited by AED5000 (Wild & Shaw,

2020).

4. Preparing a trial Balance

The balances of the accounts are then entered in to ensure that the ledgers are accurate. This

would mean that the balances of all the accounts must be entered as per their balances.

Usually the sales revenue accounts would be credit, while the cash account would have a

positive balance and would have a debit. The same way the owners’ equity would be credit,

while purchases would be debit. The main aspect of the trial balance is that the totals of the

debit and the credits must tally. This would result in the fact that the ledger accounts are

correct. This however, does not mean that the ledger accounts are fully accurate. However, the

use of the trial balance can be one of the key ways to say that some errors have not been

made.

5. Journalize and post the adjusting entries

When the trial balance is prepared the accounts would be unadjusted. If the business paid

AED2000 for insurance for two years 2020-2021. The accrual basis of accounting would mean

that the expenses of one particular year must be related to that year only. Thus, the insurance

must have a prepayment. These aspects would need to be journalized. This the journal entry for

this particular transaction would be Prepaid Insurance Debit of AED1000, while Insurance

Expenses would be AED1000.

 6. Prepare adjusted trial balance

In this stage there should be a new trial balance which must be prepared. The accounts which

would be needed to be debited must be entered and the corresponding account must also be

credited. The continuing example the insurance expense would be created while the another

account of insurance expense would also be entered. This would mean that a new trial balance

would be prepared taking into account all the details of the accounting concepts.

7. Prepare financial statements

When the adjusted trial balance is prepared there is a clear set where the financial statements

can now be prepared. There is a clear need to ensure that the profits and losses would now be

calculated. This would mean that the other stakeholders would use this information to get the

best of results.

8. Journalize and post-closing entries

When the financial accounts are prepared there is a need to ensure that the temporary

accounts are closed. An example of the temporary account is the expense accounts. The

expense accounts must not be transferred to the next financial period. This would mean that

the journal entries must be prepared to ensure that there are no balances left. Thus, the

insurance expense account must be credited and the income and expenses account must be

debited.

9. Prepare a post-closing trial balance

When the journal entries for post-closing entries are made this mean that the business must

now prepare another trial balance which would have the balances of accounts which need to

be used in the next financial period. Thus, the post-closing trial balance would ensure that no

temporary accounts are entered. The expenses would be transferred to the income summary.
The liabilities would and assets would remain and would also ensure that the business is in a

position to continue its operation (Wild & Shaw, 2020).

Conclusion
The accounting cycle is an essential aspect for financial accounting .This would be needed to

get the best of results for the stakeholders and ensure that they are able to see the financial

results. The other stakeholders like the government would always ensure that the company is

able to perform the right accounting standards and is giving the appropriate taxes. The use of

the technology however, has made the these tasks less cumbersome and the use of

sophisticated software can help to automate the whole process (Abdulrahaman, 2012).

References

Abdulrahaman, S. (2012). Accounting Cycle and the Development of Accounting Practices in

Nigeria. Nigerian Chapter of Arabian Journal of Business and Management Review, 1(1),

36–43. https://doi.org/10.12816/0003607

Wild, J. J., & Shaw, K. W. (2020). Fundamental accounting principles. McGraw-Hill Education.