10 Stages Of The Accounting Cycle You Must Understand

Did you know, if an accountant does not know the accounting cycle properly then it can have a fatal impact on his performance as a professional?

And a businessman should also know about the accounting cycle so as not to be fooled by his finance and accounting employees.

Then maybe a question will arise in your mind, then what should I understand about the accounting cycle.

The accounting cycle or often also called the basic accounting cycle is the activity of systematically collecting and processing accounting data in one accounting period.

Basically the accounting cycle of trading companies and service companies’ accounting cycles is the same, only the transactions are different.

For example, the recording of transactions in the accounting of a trading company is different from that of a service company.

To better understand the difference between trading and service company accounting, you can visit the following article.

A businessman should know about the concept of the accounting cycle so that he can more easily understand his company’s financial statements.

But in general it can be concluded that whatever type of business you are in, whether it’s a trading company, service company, manufacturing or so on, it is mandatory to know about the accounting cycle and also the existing accounting cycle chart, especially for your type of business.

10 Stages of the Accounting Cycle

In general, there are 10 stages of the accounting cycle that occur in the books of a business. What are the 10 stages, consider the following explanation:

1. Analyze Transactions

The first thing to do in the accounting cycle is the identification or analysis of transactions.

The recording system is usually in the form of a double entry where each transaction is recorded against the debit and credit financial position in the same amount. Each transaction recording will affect at least two bookkeeping accounts.

Also read Get To Know Debit And Credit Terms In Accounting.

2. Journalize

The second step is to record transactions into the journal according to the category. We know there are general journals and special journals.

A general journal is known as a journal only, which is usually the recording of transactions is entered into one account that is debited and one is credited.

Meanwhile, special journals are made to increase the efficiency of recording recurring transactions.

3. Posting to the Ledger

The third step in the accounting cycle is posting transactions that have been recorded in the journal to the general ledger.

In this ledger, each accounting account will record all transactions related to each account. To facilitate identification, each account will be assigned a code number.

4. Prepare the Trial Balance

Next, you must compile a trial balance. To make it, you just need to transfer the balance of each account in the general ledger to the trial balance.

Make sure the nominal debit and credit balances in the balance are balanced because if they are not balanced then you have to look for where the error occurred until the balance is not balanced.

5. Making Adjusting Journal

At the end of the period, sometimes we find transactions that have not been recorded or errors in recording. Well, this is where the adjusting journal function exists.

After being recorded in the adjusting journal, the transaction will then be transferred to the general ledger.

6. Creating a Trial After Adjustment

After moving to the general ledger, you can then create a trial balance after adjustments. The balance between assets and liabilities in the trial balance must be balanced.

7. Making Financial Reports

Financial reports are very important reports for company directors because with financial reports they can find out the company’s financial condition.

Financial reports also help directors make policies and strategies that must be carried out by the company. Before making financial statements, some people prefer to make a work sheet. This is done to simplify the process of making financial reports.

Some of the financial statements that must be in a business are:

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