accounting cycle

what is the accounting cycle?

a series of steps that captures and summarizes business transactions to assist in the preparation of financial statements

how often is the accounting cycle repeated?

monthly, quarterly, or annually

what is the first step in the accounting cycle?

identify and understand the transaction. (this happens on a daily basis)

what is the second step in the accounting cycle?

analyze the transaction to determine which accounts are involved and how they impact the accounting equation

what is the third step in the accounting cycle?

determine which accounts will be debited and which will be credited

debit means ______ and credit means ______

left and right

accounts on the ____ side of the accounting equation have a natural debit balance: increase with a debit and decrease with a credit.

left

(assets)

accounts on the _____ right side of the accounting equation have a natural credit balance: increase with a credit and decrease with a debit.

right

(liabilities and equities)

true or false: debits need to equal credits

true

revenues have a natural debit or credit balance?

credit

how do expenses increase? (with a debit or a credit?)

debit

how do dividends increase? (debit or credit?)

debit

why do expenses and dividends increase with debit?

because it is reducing retained earnings and RE is on the right side of the equation and is increased with credit.

what accounts increase with a debit?

assets, expenses, dividends

what accounts increase with a credit?

liabilities, owners equity, revenue, contra-asset