| Businesses need to ensure that their financial records | | | | 7) Business Financial Statements |
| are accurate, up-to-date, and in accordance with | | | | At this stage, a number of important financial |
| accepted accounting principles. They can achieve this | | | | statements are created. The Income Statement and |
| objective by following the accounting cycle. | | | | Statement of Owner's Equity first, followed by the |
| These are the steps that make up the accounting | | | | Balance Sheet. |
| cycle... | | | | 8) Closing Of The Trial Balance |
| 1) Analysis | | | | Permanent accounts now have their balances carried |
| Analyzing all of the transactions from the past year, | | | | into the next period, while temporary accounts are |
| and locating all relevant documents and receipts, is | | | | closed. The last entries made in those accounts are |
| the first step that needs to be taken. | | | | posted to the capital account of the business, after |
| 2) General Journal | | | | which all balances (expense, revenue, withdrawal, |
| Next, it is necessary to create a central record of all | | | | etc.) should be zero. |
| of the transactions. This record is referred to as a | | | | 9) Post-Closing Trial Balance |
| General Journal. | | | | Finally, comes the post-closing trial balance, which lists |
| 3) Posting | | | | the balances of the accounts that were not closed |
| Following the journalizing of transactions, they are | | | | (such as liabilities, assets, and owner's equity). This |
| then transferred and posted to the ledger. This paper | | | | trial balance helps verify that permanent accounts |
| / electronic trail is important to verify accuracy and | | | | balance (i.e. that they have equal debit and credit |
| to refer to if accounts are found not to be balancing | | | | sums) and that all temporary accounts were properly |
| up later on. | | | | closed. |
| 4) The Unadjusted Trial Balance | | | | It is important that business owners understand the |
| The next step is to total up debit and credit balances | | | | steps involved in this accounting cycle. The reason is |
| to ensure that they are equal. Information from the | | | | that they are ultimately responsible for any mistakes, |
| ledger should also be compiled so that financial | | | | whether by accident or not, in their finances. |
| statements can be prepared. | | | | That is not so say that they should do all of their |
| 5) Adjustment | | | | accounting themselves, that would also be a mistake. |
| Now that external transactions (such as supply | | | | Rather, the point is that proper accounting is so |
| purchases and utility payments) have been recorded | | | | important to a business that it pays to be fully aware |
| and verified, it is time to adjust the accounts for | | | | of what needs to be done, but to seek professional |
| internal transactions (such as prepaid rent or | | | | assistance in the doing of those things. |
| unearned revenue). | | | | Therefore, it is highly recommended that business |
| 6) The Adjusted Trial Balance | | | | owners enlist the help of a reputable accounting firm. |
| The preparation of the adjusted trial balance is the | | | | Not only will they ensure that the accounting cycle is |
| next task, which encompasses all internal and | | | | appropriately followed, and that all legal obligations are |
| external transactions for the reporting period. Again, | | | | met, they will also offer advice and feedback on how |
| there accuracy is verified, by ensuring the credit and | | | | to better organize finances in the future. |
| debit sums are equal. | | | | |