The Accounting Cycle Info

The accounting cycle consists of the many steps that are followed by accounting staffs, beginning with analyzing transaction and ending with preparing a post-closing trial balance. When the accountant analyzes source documents to determine how to record the business transaction. Thus, the basic input of the accounting cycle consists of the various source documents, including sales invoices, purchase invoices, and time cards for hourly employees. The output will consist of the financial statements. The three basic financial statements are the income statement, the balance sheet and the statement of owner’s equity.

Adjusted Trial Balance

Adjustments are recorded in the journal at the end of each accounting period, generally at the last date of the month. The recorded amounts are then posted to the general ledger account as per final day of the duration time. After posting the adjustments, the accountant prepares an adjusted trial balance to prove the equality of debits and credits.

Preparation of Financial Statements

The adjusted trial balance is used to prepare the income statement and the balance sheet. The revenue accounts make up the revenue of the hospitality enterprise, while the expense account makes up the expenses of the business. The difference between the revenues and expenses is either net income or net loss. Net income results when revenues exceed expenses, while net loss results when expenses exceed revenues.

Closing Entries

In closing entries the revenue and expense accounts are nominal accounts, since they are subbing classification of owner’s equity. Accountants separate revenue and expense account to get more detailed information for use in preparing the financial statements. Once the financial statements are prepared, the accountant will close the revenue and expense account, clearing the balance to zero by transferring the balances to the owner’s equity capital account. The closing entries that must be recorded in the general journal and then posted to the general ledger accounts. There are three basic steps are involved in closing process.

  • Close the revenue and expense accounts to the income summary account.
  • Close the income summary account to the owner’s equity account.
  • Close the owner’s drawing accounts to the owner’s equity account.

Post-Closing Trial Balance

After the accountant records and posts the closing entries, the only balances that remain in the general ledger are the balance sheet accounts. These accounts must be in balance; that is, the total of debit balance accounts must equal the total of credit balance accounts. To test this equality and to check the accuracy of the closing process, the accountant prepares a post-closing trial balance. As with the trial balance prepared before it closes, account balances are listed in debit and credit columns and totaled to ensure that debits equal credits.