Accounting Cycle Assignment Help
Accounting cycle is a Step by step process of recording, Classifying and summarizing the Accounting transactions of the business. The end result of Accounting cycle is preparation of Income Statement, Financial Statement, and Balance Sheet of an entity. The entire process of Accounting Cycle is done to help users in understanding the financial information in a detailed manner by forming Financial Statements. The main purpose of Accounting Cycle is to record all the Financial transactions as and when they occur and summarize them by making Financial Statements. Accounting Cycle Assignment Help cannot be asked alone as there cannot be any practical questions. It will always by merging it with another Accounting question.
Steps in Accounting Cycle
Accounting Cycle consist of 10 steps. They are as follows:
- Identification and Analysis of Business Transactions :
In the first Step, the Source documents such as Accounting Vouchers, Accounting Invoices are gathered and analysed.
- Journalizing the Business Transactions :
In the second Step, the identified documents are accounted by passing a Journal entry. These transactions are recorded in the Books of Account by following Double Entry System of Accounting.
- Posting into Ledger Account :
Once all the transactions are journalized, the next step is posting it into relevant Ledger. Every entry made in the Journal is posted to one or the other Ledger.
- Preparation of Trial Balance from Ledger :
An unadjusted Trial Balance is prepared from the Ledger Accounts. The purpose of preparing Trial Balance is to ensure the Accounts are tallying i.e. the sum of credit side must be equal to the sum of Debit Side. Trial Balance ensures that all transactions are entered correctly.
- Passing Adjusting Entries :
This is one of the most confusing step of Accounting Cycle where Students always tempt to make mistakes. Adjusting entries are generally passed to correct the errors present. The errors are corrected by passing rectifying entry. This is generally passed at the end of Accounting period.
- Preparation of Adjusted Trial Balance :
Once the adjusting entries are passed, the next step is preparation of adjusted Trial Balance. The adjusted Trial Balance will be finally used in preparing Income Statement and Balance Sheet of an entity.
- Preparation of Financial Statements :
The Financial Statement is the key element of any business as it helps to give the true view of the Financial Condition of an entity. Financial Statements consist of income statement, statement of retained earnings, balance sheet and the statement of cash flows.
- Recording and Classifying the Closing Entries :
Once the Financial Statements are prepared, the accountant would be working for the next period. Closing entries are the entries which are made for recording the business transaction for the next period.
- Preparation of Post-Closing Trial Balance :
A post-Closing Trial balance refers to the Trial Balance which is prepared from extracting information of Balance Sheet. Post-Closing Trial Balance is prepared after the preparation of Financial Accounts.
- Recording Reverse Entries
Reverse entries refers to the entries made in the beginning of an Accounting period to cancel an adjusting entry that was made in the prior year period.
Example of Accounting Cycle:
Let’s take an example:
Sale of raw material in Cheque Payment for $20,000.
STEP 1: The invoice for the Sales will be gathered from the Accountant and it will be analysed.
STEP 2: A journal entry will be passed by Debiting the Bank A/C and crediting the Sales A/C with $20,000.
STEP 3: The journal entry of Sales will be posted in the relevant ledger accounts.
STEP 4: The Ledger accounts will be extracted and used to prepare an unadjusted trial balance.
STEP 5: Adjusting Entry: Another Sales of $7,000 in cash were not recorded.
An adjusting entry will be passed by Debiting the Cash A/C and crediting the Sales A/C with $7,000and then recorded in the ledger.
STEP 6: The adjusting entry will be recorded in the unadjusted trial balance by making adjustments in the Sales A/C and the Cash A/C for the purpose of preparing adjusted trial balance.
STEP 7: Financial statements are prepared by extracting balances from the adjusted trial balance. Financial statements are prepared in a specific order.
STEP 8: Closing entries relating to revenues, expenses etc. are recorded for the next year.
STEP 9: A post-closing trial balance is prepared by extracting the balances from the balance sheet.
STEP 10: Reverse entries are recorded to cancel the previous years’ adjusting entries.
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