Accounting Cycle

Comprehensive flashcards covering the 10 steps of the accounting cycle, from initial transaction analysis to reversing journal entries.

Analyzing

The first step in the accounting cycle which involves identifying business transactions from source documents such as official receipts, sales invoices, or billing statements.

Official receipts

Common business documents usually used for service businesses to record transactions.

Sales invoices

Common business documents usually used for merchandising businesses to record transactions.

Journalizing

The process of entering a business transaction in the form of an accounting entry in the journal or the "book of original entry."

Journal

The "book of original entry" where business transactions are initially recorded in chronological order.

Simple journal entry

A journal entry that has one debit account and one credit account.

Posting

The procedure of transferring journal entries to the ledger accounts after journalizing has occurred.

Ledger

The "book of final entry" containing all the accounts (assets, liabilities, owner's equity, revenues, and expenses) maintained by the business.

Trial balance

A list of accounts and their balances at a given time which shows the equality of the debits and the credits.

Adjusting entries

Entries needed in order to present account balances in the financial statements in adherence to the accrual principle.

Accrual-basis accounting

The accounting practice where entries are made to ensure financial statements adhere to the accrual principle.

Adjusted trial balance

A list prepared after all adjusting entries have been journalized and posted to bring ledger balances into amounts that adhere to the accrual principle.

Financial statements

Reports used by businesses to communicate significant financial information about economic activities to interested users.

Statement of Financial Position

The first component of a complete set of financial statements, also known as a real account statement.

Notes

A component of financial statements comprising a summary of significant accounting policies and other explanatory information.

Nominal accounts

Accounts that relate to a particular accounting period and are closed or brought to zero balances at the end of the period.

Drawing account

An account that is closed or brought to zero balance at the end of the accounting period by transferring it to the Income Summary account.

Income Summary account

A temporary account to which nominal accounts and drawing accounts are transferred before it is subsequently closed to the owner's capital account.

Real accounts

Statement of financial position accounts that relate to one or more future accounting periods and whose ending balances are carried forward as beginning balances.

Closing entries

Journal entries responsible for bringing nominal accounts and the drawing account to zero balances.

Post-closing trial balance

A trial balance prepared after all nominal and drawing accounts have been closed, leaving only real accounts with balances.

Reversing entries

Optional entries made at the beginning of the next accounting period that are the exact opposite of adjusting entries.