The Accounting Cycle
Essay Preview: The Accounting Cycle
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Define:
Accounting Cycle– the accounting period of a business is separated into activities that help a business keep its accounting record in an orderly fashion.
There are NINE steps in the Accounting Cycle. The first three steps are:
Step 1:
Collect and verify source documents
Analyze each transaction
Journalize each transaction
The following are several types of source documents (they can be generated by hand, machine or computer)
invoice
Lists specific information about the business transaction involving the buying or selling of an item
Contains the date of the transaction along with the quantity, description, and cost of each item.
receipt
A record of cash received by a business
Indicates the date the payment was received, the name of the person or business from whom the payment was received and the amount of the payment.
memorandum
a brief written message that describes a transaction that takes place within a business
Often used if no other source document exists for the business transaction.
Check stub
Lists the same information that appears on the check.
The date written
The person or business to whom the check was written
Amount of the check
Also shows the balance in the checking BEFORE and AFTER each check is written.
Step 2:
You have already learned how to analyze transactions (6-step analysis)
Now, you must examine a source document to determine what occurred during a business transaction!!!!!!!
Step 3:
We are now ready to record the debit and credit parts of each business transaction in a journal.
A journal is a record of all the transactions of a business.
Kept in chronological order
The process of recording the transactions is called journalizing.
Contains the most important information relating to