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Notebook 1. Introduction to Accounting

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The Accounting Cycle

The Accounting Cycle

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 Recording

1. Identification of Accountable Transactions. Business transactions or events are analyzed and identified whether they are
accountable or not.

2. Journalizing. The accountable transactions are recorded in the book of original entry known as the journal. The transactions are
recorded chronologically using the appropriate accounts and amounts.

3. Posting. The transactions from the journal are classified in the book of final entry known as the ledger. The ledger classifies the
transactions effecting the increases and decreases for each account.

Summarizing

4. Trial Balance. The summary of accounts balances from the ledger is prepared in the list of accounts known as the trial balance.
This is the proof that the ledger debit balances and credit balances are equal and is in balance.
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 5. Adjusting Entries. Adjusting journal entries are made at the end of the accounting period to assign revenues to the period in
which they are earned and expenses to the period in which they are incurred.

Reporting

6. Financial Statements. The following financial statements are prepared: statement of financial position, statement of financial
performance, statement of changes in equity, statement of cash flows and the notes to the financial statements. These financial
statements provide useful information to interested parties for their decision-making.

7. Closing Entries. The temporary nominal accounts are eliminated from the accounts by recording and posting the closing entries.
This will prepare the accounting records for the next accounting period.

8. Post-Closing Trial Balance. After the closing entries are posted, the post-closing trial balance is prepared to check that the
debit and credit balances of the remaining accounts are correct.

Optional

9. Recording of Reversing Entries. At the beginning of the next accounting period, selected adjusting journal entries made at the
previous accounting period are reversed to “normalize” the recording of the related actual transactions.

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Table of contents

Introduction
Business and its Requirements
Accounting
Bookkeeping
The Accounting Cycle

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Quiz 1. Introduction to Accounting ▶︎

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