ORTULA, Sheila Mae D.

BA-MA 403
The Accounting Cycle

Accounting Cycle Steps

1. Identification of Events to be recorded
The transactions identified are then analyzed to determine the accounts affected and the
amounts to be recorded. Includes the preparation of business documents, or source documents. A
business document serves as basis for recording a transaction.
Aim: to gather information about transactions or events generally through the source
documents.
2. Transactions are Recorded in the Journals
Business transactions are recorded using the double-entry bookkeeping system. They are
recorded in journal entries containing at least two accounts (one debited and one credited). A
general journal is used to record those that cannot be entered in the special books. Transactions
are recorded in chronological order and as they occur.
Aim: to record the economic impact of transactions on the firm in a journal, which is form
that facilities transfer to the accounts.
3. Journal Entries are Posted to the Ledger
The ledger is a collection of accounts that shows the changes made to each account as a
result of past transactions, and their current balances.
Aim: to transfer the information to the ledger classification
4. Preparation of a Trial Balance
All account balances are extracted from the ledger and arranged in one report. Afterwards,
all debit balances are added. All credit balances are also added. Total debits should be equal to
total credits.
Aim: to provide a listing to verify the equality of the debits and credits.

5. Preparation of the Worksheet including Adjusting Entries

Adjusting entries are prepared as an application of the accrual basis of accounting. At the
end of the accounting period, some expenses may have been incurred but not yet recorded in the
journals. Some income may have been earned but not entered in the books.
Aim: to aid in the preparation of financial statements
6. Preparation of the Financial Statements
The financial statements are the end-products of an accounting system.
A complete set of financial statements is made up of: (1) Statement of Comprehensive
Income (Income Statement and Other Comprehensive Income), (2) Statement of Changes in
Equity, (3) Statement of Financial Position or Balance Sheet, (4) Statement of Cash Flows, and (5)
Notes to Financial Statements.
Aim: to provide useful information to decision-makers
7. Adjusting Journal Entries are Journalized and Posted
An adjusted trial balance may be prepared after adjusting entries are made and before the
financial statements are prepared. This is to test if the debits are equal to credits after adjusting
entries are made.
Aim: to record the accruals, expiration of deferrals, estimations and other events from the
worksheet
8. Closing Journal Entries are Journalized and Posted
Temporary or nominal accounts, i.e. income statement accounts, are closed to prepare the
system for the next accounting period. Temporary accounts include income, expense, and
withdrawal accounts. These items are measured periodically.
Aim: to close temporary accounts and transfer profit to owners equity
9. Preparation of a Post-Closing Trial Balance
Since temporary accounts are already closed at this point, the post-closing trial balance
contains real accounts only.
Aim: to check the equality of debits and credits after closing entries are made
10. Reversing Journal Entries are Journalized and Posted
Reversing entries are optional. They are prepared at the beginning of the new accounting
period to facilitate a smoother and more consistent recording process. In this step, the adjusting
entries made for accrual of income, accrual of expenses, deferrals under the income method, and
prepayments under the expense method are simply reversed.
Aim: to simplify the recording of certain regular transactions in the next accounting period

Accounting Software
Kashoo
Kashoo transforms how small businesses manage their finances. At its core, Kashoo is a powerful yet
affordable online accounting solution designed specifically for small business. With no accounting
experience, the business owner can quickly and efficiently do the books and move on to running the
business. With the help of powerful visualization dashboards, business owners keep on top of the
numbers impacting business, make better strategic decisions, and proactively take action. Financial
goals are met and disasters are avoided.
AccountEdge
AccountEdge Pro helps your small business manage your bank accounts, balances, account numbers
and keep track of your annual budget. The Chart of Accounts includes all the accounts you need to
track for your small business: assets, liabilities, equities, income and expenses. Daily, weekly, monthly,
quarterly, or yearly, you can enter these transactions one time and then be reminded to record the
transaction before it hits your books. The Company Data Auditor helps you to make sure your business
data is correct, protected, and balanced. It backs up and verifies your company file, lets you lock-down
reconciled financial data, keeps an audit trail, and runs reviews to make sure your numbers are in
balance.
Quickbooks
Easy to set up and use. And unlike spreadsheets, it does the accounting automatically. QuickBooks
helps you keep track of the money coming in and out of your business, all in one easy-to-use place. So
you always know where you stand, and youre always ready for tax time. Don't worry about losing your
laptop or important files. QuickBooks automatically backs up your data with bank level security so it's
always safe, and always available, from any device.
Accounting Software

Quickbooks

Pros
easy to use
efficien,
good accounting reports
flexible
with
3rd
party
applications and affordable.

Cons
missing
industry
&
business-specific features
lack of key reports outside
of accounting
instability / crashes
lack of direct professional
support
file-size issues

Complete
Macintosh
accounting software solution

Robust inventory with price

levels, quantity price breaks,
and item assemblies

AccountEdge

Kashoo

Robust Job costing including

progress billing, budgets, and
profitability

Mobile and web apps to add

transactions from anywhere to
sync back to your company file

Integrated payroll

Retainers and escrow accounts

Three levels of transactions

categorization-jobs, categories,
and departments

Multi-currency

Network capable for multiple

simultaneous users

Ability to see profitability on an

individual invoice

Company
file
can
be
transferred back and forth
between Mac and Windows
with NO conversion needed.

Can import text files

practically
any
kind
transaction

easy-to-use
full-featured accounting service

Less
user-friendly
than QuickBooks for Mac,
though not by much

Reports lack some flexibility

in choosing what items to
include or filter, as well as
sorting flexibility

Does not retain data from

previous years by default,
which has both advantages
and disadvantages

not equipped to track

complex
projects
or

of
of

supports traditional doubleentry accounting

free account access for your
accountant
capable
of
downloading
transaction data from any bank,
including
credit
card
transactions.

inventory
does not include a project
tracker
does not have the ability to
store items for sale
Although
it
includes
excellent iPad tools, it does
not include iPhone or
Android mobile phone apps.