The Accounting Cycle

THE MONTHLY ACCOUNT CYCLE AND REPORTS PRODUCED

A presentation by: Sharon Wallace, Asc,BSc, DipFA.

WHAT IS AN ACCOUNTING CYCLE?
• Called a “cycle” because in accounting the workflow is circular. • This is a process that includes several steps. • Cycle can be monthly, quarterly, yearly etc. • Transactions are aggregated at the end of each reporting period into financial statements.

STEPS OF THE ACCOUNTING CYCLE
• There are eight basic steps 1. Transactions 2. Journal Entries 3. Posting 4. Trial Balance 5. Worksheet 6. Adjusting Journal Entries

STEPS OF THE ACCOUNTING CYCLE
7. Financial Statements 8. Closing the Books

STEPS OF THE ACCOUNTING CYCLE
Transactions • Financial activities that involve the exchange of a company’s asset. • Examples: Buying stationery, paying landlords, topping up utilities and receiving service charge from clients. • Source documents are associated with each transaction.

STEPS OF THE ACCOUNTING CYCLE
• Examples of source documents: Supplier Invoices Customer Invoices Petty Cash Vouchers Cash Receipts Remittance Advices

STEPS OF THE ACCOUNTING CYCLE
Journal Entries • Logging of transactions. • Consist of several recordings either a debit or credit. • Journal – a record of financial transactions in order by date.

STEPS OF THE ACCOUNTING CYCLE
Posting • Recording in the general ledger the information contained in the journal. • Normally done at the time the transaction is journalised.

STEPS OF THE ACCOUNTING CYCLE
Trial Balance • Itemises the debit and credit totals for each account. • Debits are listed in the left column and all credits in the right column. • Totals of the two columns should be identical.

STEPS OF THE ACCOUNTING CYCLE
Worksheet • Used to track corrections made on a trial balance. • Common causes of an incorrect trial balance: Entering a portion of a transaction. Entering an incorrect amount.

STEPS OF THE ACCOUNTING CYCLE
Adjustments • Account for accruals, prepayments, estimates, depreciation etc, e.g....