Eight Steps in the Accounting Cycle

There are eight steps in the accounting cycle and they are as follows:

0. Analyze transactions by examining source documents.

1. Journalize transactions in the journal.
2. Post journal entries to the accounts in the ledger.
3. Prepare a trial balance of the accounts
4. Make end of period adjustments ( A worksheet can be used)
5. Prepare Adjusted Trial Balance
6. Prepare a full set of financial statements.
7. Journalize and post-closing and adjusting entries.
8. Prepare a post-closing trial balance.

An unadjusted trial balance is one which is created before any adjustments are made in the
ledger accounts.
The preparation of a trial balance is very simple. All we have to do is to list the balances of the
ledger accounts of a business
Since, in double entry accounting we record each transaction with two aspects, therefore the total
of debit and credit balances of the trial balance are always equal. Any difference shall indicate
some mistake in the recording process or in the calculations. Although each unbalanced trial
balance indicates mistake, but this does not mean that all errors cause the trial balance to
unbalance. There are few types of mistakes which will not unbalance the trial balance and they
may escape un-noticed if we do not review our work carefully. For example, to omit an entry, to
record a transaction twice, etc.
After the preparation of an unadjusted trial balance, adjusting entries are made

Adjusted Trial Balance

An Adjusted Trial Balance is a list of the balances of ledger accounts which is created after the
preparation of adjusting entries. Adjusted trial balance contains balances of revenues and
expenses along with those of assets, liabilities and equities. Adjusted trial balance can be used
directly in the preparation of the statement of changes in stockholders' equity, income statement
and the balance sheet. However, it does not provide enough information for the preparation of
the statement of cash flows.