Accounting Cycle

Accounting Cycle
This is a collective process of recording and processing the accounting events of a company. The
series of steps begin when a transaction occurs and end with its inclusion in the financial
statements. The nine steps of the accounting cycle are:
Collecting and analyzing data from transactions and events.

Putting transactions into the general journal.
Posting entries to the general ledger.
Preparing an unadjusted trial balance.
Adjusting entries appropriately.
Preparing an adjusted trial balance.
Organizing the accounts into the financial statements.
Closing the books.
Preparing a post-closing trial balance to check the accounts.
Also known as "bookkeeping cycle".
General Ledger
A company's main accounting records. A general ledger is a complete record of financial
transactions over the life of a company. The ledger holds account information that is needed to
prepare financial statements, and includes accounts for assets, liabilities, owners' equity, revenues
and expenses.
A general ledger is typically used by businesses that employ the double-entry bookkeeping method
- where each financial transaction is posted twice, as both a debit and a credit, and where each
account has two columns. Because a debit in one account is offset by a credit in a different account,
the sum of all debits will be equal to the sum of all credits.
Trial Balance
A bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit
columns. A company prepares a trial balance periodically, usually at the end of every reporting
period. The general purpose of producing a trial balance is to ensure the entries in a company's
bookkeeping system are mathematically correct.
Financial Statements
Financial statements are meant to present the financial information of the entity in question as
clearly and concisely as possible for both the entity and for readers. Financial statements for
businesses usually include: income statements, balance sheet, statements of retained earnings and
cash flows, as well as other possible statements.
Income Statement
A financial statement that measures a company's financial performance over a specific accounting
period. Financial performance is assessed by giving a summary of how the business incurs its
revenues and expenses through both operating and non-operating activities. It also shows the net
profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year. The
income statement is divided into two parts: the operating and non-operating sections.
Balance Sheet
A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a
specific point in time. These three balance sheet segments give investors an idea as to what the
company owns and owes, as well as the amount invested by the shareholders.
Cash Flow Statement

The document provides aggregate data regarding all cash inflows a company receives from both
its ongoing operations and external investment sources, as well as all cash outflows that pay for
business activities and investments during a given quarter.
Retained Earnings
The percentage of net earnings not paid out as dividends, but retained by the company to be
reinvested in its core business, or to pay debt. It is recorded under shareholders' equity on the
balance sheet.
The formula calculates retained earnings by adding net income to (or subtracting any net losses
from) beginning retained earnings and subtracting any dividends paid to shareholders: Retained
Earnings Also known as the "retention ratio" or "retained surplus".
Dividend
A dividend is a distribution of a portion of a company's earnings, decided by the board of directors,
to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other
property.
Types of Depreciation
Straight line depreciation: Same depreciation is charged over the entire useful life.
Reducing balance depreciation: Depreciation expense decreases at a constant rate as the
life of an asset progresses.
Sum of the Year' Digits Depreciation: Depreciation charge declines by a constant amount
as the life of the asset progresses.
Units of Activity Depreciation: Depreciation charge varies each period in proportion to the
change in level of activity.
Owners equity
Owner's equity represents the owner's investment in the business minus the owner's draws or
withdrawals from the business plus the net income (or minus the net loss) since the business began.
The amount of owner's equity is the amount of assets minus the amount of liabilities.

Accounting Cycle

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Accounting Cycle

Collecting and analyzing data from transactions and events.

Also known as "bookkeeping cycle".

Cash Flow Statement

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