accounting cycle

step 1

Analyze the transaction: Determine the effects of the transaction and what accounts of 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. Keep track of each account balance.

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 know 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).