Accounting Cycle Steps
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Questions and Answers

What is the first step in the accounting cycle?

Use source documents to identify accounts affected by external transactions.

What is the second step in the accounting cycle?

Analyze the impact of the transaction on the accounting equation.

What is the third step in the accounting cycle?

Assess whether the transaction results in a debit or a credit to the account balance.

What is the fourth step in the accounting cycle?

<p>Record the transaction.</p> Signup and view all the answers

What is the fifth step in the accounting cycle?

<p>Post the transaction to the T-account in the general ledger.</p> Signup and view all the answers

What is the sixth step in the accounting cycle?

<p>Prepare a trial balance.</p> Signup and view all the answers

What is the seventh step in the accounting cycle?

<p>Record and post adjusting entries.</p> Signup and view all the answers

What is the eighth step in the accounting cycle?

<p>Prepare financial statements (income statement, statement of stockholders' equity, balance sheet, and statement of cash flows).</p> Signup and view all the answers

What is the ninth step in the accounting cycle?

<p>Record and post closing entries.</p> Signup and view all the answers

Flashcards

Identify Accounts

The first step in the accounting cycle involves identifying the specific accounts affected by a transaction. This can be done by examining source documents like invoices, receipts, and contracts.

Analyze Accounting Equation

The second step analyzes the impact of the transaction on the accounting equation (Assets = Liabilities + Equity). This helps determine how the transaction changes the company's financial position.

Debit or Credit?

The third step involves determining whether the transaction requires a debit or a credit to the affected account balance. Debits increase asset and expense accounts, while credits increase liability, equity, and revenue accounts.

Record the Transaction

The fourth step involves recording the transaction in the journal. This chronological record includes the date, accounts affected, and dollar amounts for each transaction.

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Post to T-Account

The fifth step involves transferring the information recorded in the journal to the general ledger (T-accounts). Each T-account represents a specific account and tracks its debits and credits.

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Prepare Trial Balance

The sixth step involves creating a trial balance, which is a list of all accounts and their balances. Debits should equal credits in a balanced trial balance.

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Adjusting Entries

The seventh step involves recording adjusting entries at the end of the accounting period. These entries are needed to ensure that revenue and expenses are accurately recognized and recorded.

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Prepare Financial Statements

The eighth step involves preparing the key financial statements: Income Statement, Statement of Stockholders' Equity, Balance Sheet, and Statement of Cash Flows. These statements provide a summary of the company's financial performance and position.

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Closing Entries

The ninth step involves recording closing entries at the end of the accounting period. These entries zero out temporary accounts (revenues, expenses, and dividends) and transfer their balances to retained earnings.

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Study Notes

Accounting Cycle Steps

  • Identify affected accounts by reviewing source documents related to external transactions.
  • Analyze the effect of transactions on the accounting equation (Assets = Liabilities + Equity).
  • Determine if the transaction causes a debit or credit entry to the account balance.
  • Record the transaction in the journal for proper tracking.
  • Post the recorded transaction to the appropriate T-accounts in the general ledger.
  • Prepare a trial balance to ensure that debits equal credits, confirming the accounts are in balance.
  • Make necessary adjusting entries to account for accruals, deferrals, and estimates.
  • Prepare financial statements, including the income statement, statement of stockholders' equity, balance sheet, and statement of cash flows.
  • Record and post closing entries to reset temporary accounts for the next accounting period.

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Description

Test your knowledge on the accounting cycle by listing the steps in proper order. This quiz covers everything from identifying affected accounts to recording the transactions. Brush up on your accounting skills and ensure you understand each critical step in the cycle.

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