ACCOUNTING

CYCLE
ACCOUNTING CYCLE is a
series of recurring accounting
steps or processes that span from
the start to the end of a particular
accounting period.
The accounting cycle is composed of the following
steps:
1. Analyzing business transactions from source
documents
2. Journalizing business transactions
3. Posting journal entries to the ledger
4. Preparing trial balance
5. Journalizing and posting adjusted journal
entries
6. Preparing adjusted trial balance.
7. Preparing financial statements
8. Journalizing and posting closing journal
entries
9. Preparing post-closing trial balance
10. Journalizing and posting reversing journal
entries.
 Transactions
Let us revisit the 10-step accounting cycle
using the transactions of Jordan River
Grocery Store, a sole proprietorship
merchandising business, which started on
September 2, 2015. The initial investments of
Mr. Jordan were:
Cash – P500,000
Store Equipment – P100,000
Furniture & Fixtures – P22,500
During the month of September, the
following transactions occurred:
Sept 8 – Bought merchandise from Mirzi
Outlet for P150,000. Jordan paid 30%
down payment and the balance on
account.
Sept. 10 – Jordan Grocery Store rendered
sales totaled P195,000 of which 40% on
account.
Sept. 12 – Collects receivable amounted
to P220,000 from various customers
Sept. 14 – Purchased a delivery van from
Renzo Motors for P250,000. Paid
P150,000 cash and the balance on account.
Sept. 15 – Paid various operating expenses
during the month: Water and electricity,
P28,000; telephone expense, P6,000; and
repair expense, P3,500.
Sept. 26 – Purchased merchandise from
Ivanna Co., P12,000. Paid P8,000 cash and
the balance on account.
Sept. 29 – Mr. Jordan withdrew P3,000 for
personal use.
Sept. 30 – Paid the wages of two staffs,
P10,000 each.
STEP 1: Analyzing business transactions from
source documents.
Recall the transaction analysis entails a
thorough understanding of the business
transaction itself and its implication on assets,
liabilities and owners equity. It is also helpful to
remember the normal balances of each account
and how they increase or decrease.
 Normal Balance Increase Through Decrease Through
(+) (-)

Assets Debit Debit Credit

Liabilities Credit Credit Debit
Owner’s Equity
 Owner, capital Credit Credit Debit
 Owner, drawing Debit Debit Credit
Revenues Credit Credit Debit
Expenses Debit Debit Credit
STEP 2: Journalizing the business
transaction.

The next step is journalizing. The

transactions would now be journalized using
journal notebook.
Journalizing Transactions
The following transactions were
selected from among those completed by
the Ilocos Norte Company during
September or current year.
Sept. 1 – Mr. Delos Reyes, the owner of
Ilocos Norte Co. made an initial
investment of P1,500,000 cash
and office equipment worth
P250,000.
Sept. 3 – Purchased merchandise on
account from La Union Co.
worth P10,000.
Sept. 4 – Purchased office supplies for
cash P8,000.
Sept. 6 – Sold merchandise on account
to Ilocos Sur Co. worth
P5,000.
Sept. 7 – Returned merchandise
purchased on September 3
from La Union Co. worth
P2,000.
Sept. 10 – Purchased merchandise for
cash, P5,000
Sept. 12 – Sold merchandise on credit
worth P5,500.
Sept. 13 – Paid La Union Co. for
purchases on account of
September 3, less returns of
September 7
Sept. 16 – Received cash from sales on
accounts of September 6 to
Ilocos Sur Co.
Sept. 20 – Received cash from various
customers worth P12,000.
Sept. 24 – Sold merchandise to
Pangasinan Co. on credit,
P3,000.
Sept. 26 – Sold merchandise returned
by Pangasinan Co. related to sale of
September 24, P1,000.
STEP 3: Posting to the Ledger
The next step after journalizing is POSTING.
If journalizing is being done in the journal,
posting is being done in the ledger.
STEP 4: Preparing the Trial Balance
The open balances in the ledger would
now be summarized in the trial balance.
Recall that trial balance is a list of accounts
and their balance at a given time. It shows
the equality of the debits and the credits.