The Accounting Cycle
Grade 8
Economic and Management Sciences
A cycle is something that has a starting
point and then some things are happening
What is a and ends at the starting point again and
cycle? repeat itself again.
What does an Accounting Cycle look like?
1.
Transaction
7. Balance Sheet
2. Source
document
We will learn more
about Income
statement (Step 6) and
Balance sheet (Step 7)
next year.
6. Income
statement 3. Journal
5. Trial Balance 4. Posting to the
Ledger
⮚ A transaction takes place every time
money exchanges hands between the
business and another party. (business
and business OR business and
individual OR individual and individual)
STEP 1: ⮚ When recording a transaction in the
books of the business, the following
Transactions information is necessary:
o the date of the transaction
o the parties involved in the transaction.
o the amount of money involved
o the reason for the transaction
⮚ The source document is proof that the
transaction took place and from where
the transaction will be recorded.
STEP 2: ⮚ Source documents are completed in
Source duplicate, the business issuing the
source document keeps the duplicate to
Documents record the information and the original is
given to the customer.
⮚ The source document will be used to
record transactions in the subsidiary
books.
⮚ Source documents are recorded in different journals known as
subsidiary journals.
⮚ Subsidiary journals are books of first entry and where record is
kept of all transactions that took place.
⮚ Two main journals:
• Cash Receipts Journal (CRJ)
o All cash that is received by a business is recorded in the
STEP 3: CRJ.
o This incoming cash can be notes and coins, cheques and
Journals
credit card and debit card payments.
o These amounts are called cash receipts.
• Cash Payments Journal (CPJ)
o All amounts paid out each month by the business are
recorded in the CPJ.
o It is important that all payments out of the business are
made by cheque and that no payments are made directly
from the cash register.
o Payments made by cheque can be tracked by the cheque
counterfoils and can therefore be recorded in the CPJ.
⮚ The General Ledger is a list of all the accounts that the business has.
⮚ The type of accounts depends on the type of business. For example, a
hairdresser has some accounts that are different to those of a spaza
shop. However, both businesses have many accounts that are the
same, for example water and electricity, stationery, wages, rent, and so
on.
⮚ The accounts in a General Ledger look similar to a capital T, which is
why they are sometimes referred to as T-accounts. The heading is at
the top of the T.
⮚ The left and right side have the same columns.
⮚ The left-hand side is called the debit side and the right-hand side is
STEP 4: called the credit side.
⮚ Posting to the General Ledger is done through a double-entry system.
Posting to ⮚ The double-entry system means that, for every time you write
something on the debit side (left-hand side) of a ledger account, you
the ledger need a matching entry on the credit side (right-hand side) of a different
account.
⮚ It contains the accounting information that is needed to prepare
the:
o Trial Balance
⮚ The ledger therefore reflects the Accounting Equation:
Assets = Equity + Liabilities
⮚ The General Ledger is divided into the following sections:
STEP 4: o Balance Sheet Accounts Section which consists Assets,
Equity and Liability accounts
Posting o Nominal Accounts Section which consist Income and
Expense accounts
CONTINUE… o Final Accounts Section which consist of the Trading, Profit
and Loss Accounts
⮚ A Trial Balance is a statement which lists all
the balances on all the accounts in the double
entry system.
⮚ A Trial Balance has a debit and credit side. All
STEP 5: Trial accounts in the General Ledger with a debit
Balance balance will be entered in the Trial Balance on
the debit side and all accounts in the General
ledger with a credit balance will be entered in
the Trial Balance on the credit side.
⮚ Both sides will be added separately, if both
sides are the same, we say the Trial balance
‘balance’.
⮚ However, if both sides are not the same, then
errors have occurred
