Question

1. In what way did you demonstrate the ability to define and complete the steps in the accounting cycle including journalizing and posting financial transactions, recording adjusting and closing entries, and preparation of financial reports.

Answer 1

The accounting cycle can be defined as a step-by-step process for the identification, analyzing, and recording the accounting events of economic transactions in a business. The steps involved in accounting cycle are as follows:

1) Identification of financial transactions: The initial step in the accounting cycle is identification of the transaction that includes any financial transaction involving the exchange or use of a company's assets

2) Record transactions in a journal: In accounting cycle the second step is the recording of these entries in the company’s journal in chronological manner. The transactions are recorded in journal entries which includes at least two accounts (one credited and one debited).

3) Posting to the Ledger: The transaction that were recorded as journal entries need to be posted to their appropriate account in the general ledger. After all transactions are posted to their respective ledger, the balances of each account can be determined

4) Preparing the unadjusted trial balance: To ensure the equality of debits and credits as done in the general ledger, the company prepares an unadjusted trial balance. This is an approach to investigate and determine any fault or prove the accuracy of the previous steps before moving to the next step

5) Recording Adjusting Entries: Adjusting entries are made for accrual of expenses, accrual of income, prepayments (expense method or asset method), deferrals (liability method or income method), depreciation, and allowances. These are prepared for the updating of accounts before summarizing in the financial statements.

6) Preparing the adjusted Trial Balance: After adjusting entries are made the adjusted trial balance is prepared to test if company's debits and credits match

7) Financial Statements: These are termed to be the end-products of an accounting system. The balance sheet, cash flow statement and income statement can be prepared using the accurate balances.

8) Closing the books: The expense and revenue accounts are zeroed and closed out for the next accounting cycle. The reason is that the expense and revenue accounts are income statement accounts that depict performance for a certain period. Balance sheet accounts would not be closed because they depict the entity's financial position at a specific point in time