The Accounting Cycle

Define:

Accounting Cycle-- the accounting period of a business is separated into activities that help a business keep its accounting record in an orderly fashion.

There are NINE steps in the Accounting Cycle. The first three steps are:

Step 1:

Collect and verify source documents

Analyze each transaction

Journalize each transaction

The following are several types of source documents (they can be generated by hand, machine or computer)

o invoice

 Lists specific information about the business transaction involving the buying or selling of an item

 Contains the date of the transaction along with the quantity, description, and cost of each item.

o receipt

 A record of cash received by a business

 Indicates the date the payment was received, the name of the person or business from whom the payment was received and the amount of the payment.

o memorandum

 a brief written message that describes a transaction that takes place within a business

 Often used if no other source document exists for the business transaction.

o Check stub

 Lists the same information that appears on the check.

* The date written

* The person or business to whom the check was written

* Amount of the check

 Also shows the balance in the checking BEFORE and AFTER each check is written.

Step 2:

You have already learned how to analyze transactions (6-step analysis)

Now, you must examine a source document to determine what occurred during a business transaction!!!!!!!

Step 3:

We are now ready to record the debit and credit parts of each business transaction in a journal.

A journal is a record of all the transactions of a business.

o Kept in chronological order

o The process of recording the transactions is called journalizing.

o Contains the most important information relating to