Accounting steps build on top of each other, topic by topic, week by week, and/or tab by tab. It all starts with #1: Journal Entries. Like any math concentration, following the steps in order will ensure accuracy. Each of these steps is the same as you may see in your schoolwork. It is important to have each step 100% correct so that what follows is also correct. Below is an image of the full accounting cycle. See explanations of each step below the graphic.
*Note: Click these links if you want to know more about accounting ratios or debits and credits
Journal Entries
Journal entries form the basis of all the business numbers and entries you will need to create your final financial statements. These are your beginning debits and credits. They are a record of every single business event/transaction
*To see a step-by-step explanation of the journal entry process, click here
Ledger Accounts
This is a record for bookkeeping entries. These will roll-up into the balance sheet and income statement transactions
Un-Adjusted Trial Balance
This his includes entries within the period that are not yet considered final.
Adjusting Entries
These entries are made at the end of the period to prepare for doing the trial balance. They allow for the final revenue or expense to be posted.
Adjusted Trial Balance
This is an internal-only document for a business. The account balances from this will be moved to the financial statements.
Financial Statements
These are a summary of the financial accounting information about the business. Financial Statements are made up of the following pages:
Balance Sheet: Assets = Liabilities + Shareholder’s Equity
Income statement or Consolidated Statement of Operations: business financials at a point in time; this tells you if the company made a profit or not
Cash Flow Statement: cash (in & out) over a particular timeframe; this tells you if the company generated any cash
Statement of changes in Owner’s or Stockholder’s Equity
Closing Statements or Closing (Journal) Entries
These entries are made at the end of the accounting period and serve to ‘zero-out’ all temporary accounts so that their balances can be transferred to a permanent account for year-end close of business. This allows for the temporary accounts to then start at $0.0 balance for the beginning of the next fiscal year.
Post-closing trial Balance or Un-adjusted Trial Balance
This is done after all transactions and adjusting entries have been posted to the general ledger. It contains nominal accounts form the income statement and real accounts from the balance sheet.