Accounting Cycle | Definition | 9 Steps of Accounting Cycle

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hello everyone hi welcome to the channel of WallStreetmojo friends today a
different topic that we are going to pick up that is the accounting cycle
accounting cycle I mean know that that that flows in a around in around every
company now what exactly is the accounting cycle
that's what we need to understand see accounting cycle is like a traditional
concept but if you understand the accounting cycle completely you'll be
able to make some prudent decisions as you can see in the picture you know all
the things which are surrounded by the business things you know but but what
exactly is the accounting cycle okay no shoes we need to understand that the
accounting cycle is basically a combination of collecting the data it is
the combination of collecting the data and for basically creating post-closing
trial balance so that's why you collect the data and accounting cycle starts
with like you know a transaction and it ends with with the books of accounts
which the books of accounts gets closed right so there are 9 steps of
accounting standards we'll be discussing each one of them a step by step process
know this is the diagram for the accounting cycle which the step by step
process you fill you'll first collect the data then you will do a journal
entries you'll be writing journal entries from those journal entries the
ledger accounts will be prepared and once you have all the ledgers you'll
you'll pick up the ledger and its balance and form an unadjusted trial
balance you'll do some adjusting entries to tally your trial balance if there is
any problems there then you'll prepare it just a trial balance from that trial
balance you will be posting the every single line item to various parts like
the profit and loss account to the balance sheet in trading accounts and
once you have prepared like with the financial statements that is a CFS that
it includes the cash flow statements balance sheets P&L notes once you've
prepared that you will be closing your books of accounts and then you'll be
preparing a post-closing trial balance so let's understand this if
single part of this step in a much detail form the first is the collection
of data and analysis of transaction right so at this juncture you know the
accounting cycle begins its it has just started and in the first step of the
accounting cycle the accountants of the company they they basically collect the
data and and analyze the transaction now for smooth-running business you can say
that there would be many transactions so the accountant needs to look at each
transactions and find out why they have actually occurred and put it under the
right accounts and basically analyze the same so the step is the most critical of
all because this is like you know a kick-starts the says for the accounting
the next ocean in this the next step is the journalizing or you can say journal
entry basically journalizing after collecting and analyzing the transaction
it's time to record the entries into the first books of accounts so in this type
of accounting cycle each transaction ok it is compared to the general you can
say journal entries and and under each entry a narration is written to mention
the reason behind debiting or creating a item now recording the entries in the
journal is important since there is an error that is at this stage of recording
and it will be it will linger on the next books of accounts as well so needs
to be taken care of the third portion in this is the recording of the journal
entries into the ledger accounts right so in this portion accounting is
basically a series of steps that are taken one one one one by one so after
journalizing all the transaction it's time for the accountant to record the
entries into the secondary books of accounts so that means if there there
are cash and capital if there are basically cash and capital there will be
like two tables in the general ledger and the balance of the respective
accounts will be transfer so the general leaders
basically they allow the accountants to get a closing balance for the for
preparing the trial balance and in the next step of the accounting service of
the accounting cycle it's creating the unadjusted trial balance right now as
you know that you know the trial balance is the source of all differentiating and
that's why special attention should be given to the trial balance now from the
closing balance of the general ledger account and an adjusted trial balance is
prepared now in this trial balance the debit balance would be recorded on the
debit side and and then the credit balance would be recorded in the credit
side so then the debit side is total and the credit side is basically total and
then the accountants will see whether both of the side have the similar
balance or not which is called as tallying the balance sheet right the
fifth step in our accounting process is performing adjusting entries now at this
juncture the unadjusted trial balance is only prepared so in this step of
accounting cycle the adjusting entries are been recorded so the adjusting
entries are typically related to you know any accrual adjustments or
periodical depreciation adjustments or amortization adjustments and so on and
so forth so without performing this adjustment entries just a trial balance
would be prepared the sixth step is creating the adjusted the sixth step is
basically creating the adjusted trial balance right so after passing the
adjusting adjusting entries it's time to create the fresh trial balance and the
trial balance is called the adjuster trial balance since it is prepared after
the adjustments that has been done entries after the after the adjustment
entries have been has been passed as it isn't so the trial balance can be used
to the most important for the financial
statement now the seven-step is basically creating the financial statement from
the trial balance so this type of accounting cycle is the most critical
part of the accounting cycles he as an investor you must know how all the
financial statements are coming from so from the adjusted trial balance all the
financial statement are born so there are four most important financial
statements that are prepared using the adjusted trial balance the first
financial statement that every investor should look into the income statement so
in the income statement the first item is sales cost of sales and other
operating expenses that are adopted from the sales the next is the balance sheet
and that includes all the data on the list of the balance sheet like the
balance sheet we record the assets and the liabilities then you have the
shareholders equity this is the next financial item that would be prepared
here along with the share capital that retain earnings would be taken to
account written earnings are like the person is the profit that has been
reinvested in the company then you have the cash flow statement that is a CFS
finally they CFS would be prepared in cash flow you know accountant needs to
find the cash flow from the kind of various activities like operating
financial investment it can be papered with two things like you know two ways
indirect and direct method when each step is basically closing the books now
now it's time to close the books the step is the last step I mean this third
last step in the accounting cycle closing the books basically means that
all the financial statement are prepared and are recorded after closing the books
a new accounting period would start and would need to start repeating the above
steps of the accounting cycle once again the step nine that will go is finally
creating the the post-closing trial balance so the post-closing trial
balance is you know to ensure that the accounting transactions are properly
recorded analyzed and summarized so post trial balance is spread and here all the
accounts are taken into account and then the closing balance the closing balances
will are recorded as for the respective positions so then the credit side of the
and the debit side are being matched see whether everything is right or not
so conclusion out of all the steps if an investor can understand the nine steps
of the accounting style cycle it would be clear that how he or she should
approach the company and progress or decline so the knowledge of the
accounting sided cycle will help you to decide whether he or she should invest
in a company or not and at the same time he will get a concrete idea about the
financial accounting of the company thank u everyone Cheers

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Accounting Cycle | Definition | 9 Steps of Accounting Cycle

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