The Accounting Cycle. The Accounting Cycle. Steps During the Accounting Period. Transferring information from ledger to day books.
Transferring information from ledger to day books
Identify the information through an original source document which provides the date, amount, description, and the name and address of other party. Journals are kept in chronological order.
Listing all the accounts and their balances to check the equality of debits and credits
Preparing and posting accrued and deferred items to journals and ledger T-accounts
Preparing and posting the closing entries to transfer the balances from the temporary accounts such as the revenue and expenses from the income statement to owner’s equity on the balance sheet
Preparing the financial statements for external users
Making final checks on accuracy before preparing the financial statements.
It can only record items that have monetary value.
It uses previous economic activities of the business to form the basis of its accounting records.
Many items on the financial statements are results of estimates.
Accounting policies differ between firms which makes comparison difficult.