Acounting cycle Flashcards
The acounting cycle
The process of recording the acounting activities of a business.
How long is a financial business year
Twelve months.
The seven steps of the acounting cycle
1 - Transaction takes place, 2 - Record information in the source document, 3 - Record in the subsidiary journals, 4 - Record in the general ledger, 5 - Record in the trial balance, 6 - Record in the financial statemnets, 7 - Analyse and interpret financial statements.
Transaction
An agreement that occurs between two or more parties.
- Transaction takes place (explain)
When a transaction take place the business must record the activity in the books of the business.
What is a source document
Evidence on paper or electrically of the transaction that has occured.
- Record the information in the source document (explain)
They can be in the form of a deposit slip, reciept, cash register roll, bank statement, etc. When the customer buys something they get a till slip and we keep a copy as evidence of the transaction.
Subsidiary journals
The first journal the transaction are entered into.
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- Record in the subsidiary journals (explain)
The subsidiary journals are used to sort Funds in (Cash reciepts journal/CRJ) and Funds out (Cash payment journal/CPJ). We enter the CRJ and CPJ daily, then total them at the end of the month.
General ledger
The journal that we record the monthly transactions that occur.
- Record in the general ledger (explain)
At the end of the month we post the transactions from the journals to general ledger, according to the acounting double entry principle. It is entered to individual acounts in the same reference order.
Trial balance
A list of closing balances of the general ledger acounts ona certain date.
- Record the trial balance (explain)
A list of closing balances of the general ledger acounts ona certain date, the first step towards the financial statement. We do this to:
- Test the accounting double entry principle
- Chech th debits are equal to credits
- Check the mathematical accuracy
The trial balance is correct when the debits equal the credits. They cannot detect ommisions.
Financial statement
A financial is a formal record of the financial position of the businesss.
- Record the financial statement
This relevent information that is presented ina structured form that is easy to understand. They are precise and easy to read for people in and out of the business. This alows the business to plan ahead and make informed decisions for future growth.
Income statements
Financial statement that measures a businesses financial performance pver a sertain period. It gives a summary of the businesses operating and non-operating activities. So the income, expense, loss and profit of the business ina period, usually 1 year.
Notes to the financial statement
Foot notes, the additional information and other relevent details that was not included in the income statement and the balnce sheet. Notes from the financial satement provides an explanation to the reader of the financial statement about the entries in the income statement and in the balance sheet.
Balance sheet
Shows the financial position of a business, summarizing the businesses assets, equity and liablities ona particular date, detailing the balnce of income and expenditure over a setain period. These give readers am idea as to what the business owns and owes and the amount invested by the owner.
- Analysis and interpretation
Financial analysis is the process of taking the financial data and organizing them into a for, revealing the businesses streghts and weaknesses. Thios helps the owners make more informed decisions to increase sales and profit, decrease expenses and debts and make improvements for the next financial year.
