Scribd
Upload
10 views2 pages

Reviewer - Accounting Cycle

Lesson 3 covers the accounting cycle, a systematic process for recording, analyzing, and reporting financial transactions. It outlines eight key steps, from identifying transactions to preparing financial statements and closing entries. A practical example illustrates how to record a purchase of office supplies, demonstrating the application of these steps.

Uploaded by

jemardenecastano
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
10 views2 pages

Reviewer - Accounting Cycle

Lesson 3 covers the accounting cycle, a systematic process for recording, analyzing, and reporting financial transactions. It outlines eight key steps, from identifying transactions to preparing financial statements and closing entries. A practical example illustrates how to record a purchase of office supplies, demonstrating the application of these steps.

Uploaded by

jemardenecastano
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Certainly!

Here's a revised version of Lesson 3: The Accounting Cycle, crafted in your own words to serve
as a personalized reviewer. This version includes detailed explanations and practical examples to
enhance your understanding.

📘 Lesson 3: The Accounting Cycle

3.1 Understanding the Accounting Cycle

The accounting cycle is a systematic process that businesses use to record, analyze, and report their
financial transactions over a specific period. This cycle ensures that all financial activities are accurately
captured and reflected in the company's financial statements.

3.2 Steps in the Accounting Cycle

1. Identifying Transactions: Recognize and gather all business transactions that have a financial
impact, such as sales, purchases, or payments.

2. Recording in Journals: Document each transaction in a journal in chronological order, specifying


the accounts affected and whether they are debited or credited.

3. Posting to Ledger Accounts: Transfer the journal entries to the general ledger, categorizing them
into specific accounts to track balances.

4. Preparing a Trial Balance: Compile a list of all ledger accounts and their balances to ensure that
total debits equal total credits.

5. Making Adjusting Entries: At the end of the accounting period, make necessary adjustments for
accrued or deferred items to reflect the true financial position.

6. Preparing an Adjusted Trial Balance: After adjustments, prepare a new trial balance to confirm
that debits still equal credits.(Finance Strategists)

7. Preparing Financial Statements: Use the adjusted trial balance to create the income statement,
balance sheet, and cash flow statement, providing insights into the company's financial
performance.

8. Closing Entries: Close temporary accounts like revenues and expenses by transferring their
balances to permanent accounts, such as retained earnings, to prepare for the next accounting
period.

3.3 Practical Example

Scenario: Your company purchases office supplies worth $500 in cash.

 Journal Entry:

o Debit: Office Supplies $500

o Credit: Cash $500


Explanation: This entry records the increase in office supplies (an asset) and the decrease in cash
(another asset). After recording, this transaction is posted to the respective ledger accounts. At the end
of the period, if some supplies remain unused, an adjusting entry is made to account for the used
portion as an expense.

You might also like