Accounting cycle

Step 1

Analyze the transaction: Determine the effects of the transaction and what accounts are affected

Step 2

Apply the rules of double entry (debits = credits)

Step 3

Record the entry in the general journal. The general journal is a chronological listing (date order) of each transaction, and what accounts are debited and credited.

Step 4

Post the entry to the general ledger.

Step 5

At each month end, subtotal each account (called "footing the accounts") and prepare a trial
balance, to make sure all debits = credits.

Step 6

Prepare adjusting entries to ensure proper revenue recognition and matching!

Step 7

Prepare an adjusted trial balance to ensure all debits = credits

Step 8

Prepare financial statements: Income Statement, Statement of Retained Earnings, Balance Sheet, and then Statement of Cash Flows.

Step 9

At year-end, prepare closing entries to close all income statement accounts (called nominal accounts) into retained earnings (or owner's equity account).