1. Accounting Cycle

2. Collect and Verify Source Documents
Step 1
Collect and Verify Source Documents
Types:
Invoice
Check Stub
Receipt
Memorandum
Source documents are the evidence that a transaction or event happened in the business. The types of sources documents are Invoices, Check stubs, Receipts, Memonrandom

3. Analyze each transaction
Step 2
Analyze each transaction
1. Determine accounts effected
2. Determine account type
3. Determine increase or decrease
4. Determine debit(s) and credit(s)
The four steps involved in analyzing the transaction are :
Determine accounts effected (cash, supplies, accounts payable, etc)
Determine account type (asset, liability, or owner’s equity) **good spot to ask what they have written down for the definition of these on their index card.
For each account ask is it increasing or decreasing
Based on the type and whether it is increased or decreased: determine which accounts are increased or decreased

4. Step 3 Journalize each transaction 1.Date 2.Account Debited
3.Amount Debited
4.Account Credited (indent slightly)
5.Amount credited
The journal is like a diary of the business’ activities. Just like you would record everything that happens to you in your diary for the day, businesses record all activity that happens in their business each day in a journal.

5. Post to the ledger Step 4 Record for each individual account.
Each account has it’s own ledger. That is just an individual record for that account. So all the transactions that effect the Cash account would be posted (recorded) into the Cash account.

6. Prepare a Trial Balance
Step 5
Prepare a Trial Balance
Used to verify ledger debit balances equal credit balances before proceeding to worksheet (completed in the first columns of the worksheet)
Next you prepare a trial balance. This is to ensure that the accounting equation is still in balance. It is a listing of all the accounts and their balances. You add the debit balances, then the credit balances, and then check to make sure that they are equal. It is completed in the first columns of the worksheet, but must balance before the rest of the worksheet is completed.

7. Step 6 Prepare a Worksheet
Gathering information for preparing financial statements
The worksheet is where you gather all the information needed to prepare the financial statements like the one we looked at when we started this unit. Some accounts need to be adjusted to bring their balances current before the financial statements are completed.

8. Step 7 Prepare the financial statements 1. Income Statement
2. Statement of Owner’s Equity
3. Balance Sheet
Once the worksheet is complete you are ready to prepare the financial statements. These include the Income statement, a Statement of Owner’s Equity, and a Balance Sheet.
The Income Statement show how much money the business has made (or lost) during a period of time.
The Statement of Owner’s Equity is a report for the owner of the business to show how the business operations have effected his/her investment during a time period.
The Balance Sheet makes sure that the debits equal the credits at a point in time. Checks to make sure the accounting equation is still in balance.

9. Step 8 Journalize and Post the closing entries
During the accounting period the revenue, expense, and drawing accounts are used to itemize those transactions to assist management in making decisions on how the business is running. At the end of the accounting period these accounts which are classified as temporary accounts are closed and their balances are transferred (moved) into the owner’s capital account (where the equity is tracked).

10. Step 9 Prepare a Post-Closing Trial Balance
The last step is to prepare a Post-Closing Trial Balance. This is just to make sure that all the debits equal all the credits are still equal and that the accounting equation is in balance before the next time period begins.

11. Then it starts over again
Then the cycle begins again for the new period of time. Usually a month, but could be for a quarter (three months) or a year.