The Accounting Cycle: Bookkeeper and Accountant Responsibilities

The Accounting Cycle: Bookkeeper and Accountants Responsibilities

Note: The accounting cycle steps are addressed in detail in our Accounting Fundamentals course.

Bookkeepers perform steps 1-3, whereas accountants perform steps 4-9.

The Accounting Cycle
The accounting cycle is a series of steps performed during each accounting period to classify, record, and summarize data for a business and to produce needed financial information.

Accounting Cycle Steps:

1.     Analyze Transactions

Analyze source documents to determine their affect on the basic accounting equation. The data about transactions appear on a variety of source documents such as sales slips, purchase invoices, credit memorandums, and check stubs. 

2.     Journalize the Transactions

Record the effects of the transactions in a journal. 

3.     Post the Journal Entries

Transfer data from the journal to the general ledger accounts. 

4.     Prepare a Worksheet

At the end of each period, prepare a worksheet.

·      Use the Trial Balance section to prove the equality of debits and credits in the general ledger.

·      Use the Adjustments section to enter changes in account balances that are needed to present an accurate and complete picture of the financial affairs of the business.

·      User the Adjusted Trial Balance section to verify the equality of debits and credits after the adjustments. Extend the amounts from the Adjusted Trial Balance section to the Income Statement and Balance Sheet sections.

·      Use the Income Statement and Balance Sheet sections to prepare the financial statements. 

5.     Prepare Financial Statements

Prepare financial statements to report information to owners, managers, and other interested parties.

·      The income statement shows the results of operations for the period.

·      The statement of owner’s equity reports on the changes in the owner’s financial interest during the period.

·      The balance sheet shows the financial position of the business at the end of the period. 

6.     Journalize and Post the Adjusting Entries

Use the worksheet to journalize and postadjusting entries. The adjusting entries are a permanent record of the changes in account balances shown on the worksheet. 

7.     Journalize and Post the Closing Entries

Journalize and post the closing entries to:

·      Transfer net income or net loss to owner’s equity.

·      Reduce the balances of the revenue, expense, and drawing accounting to zero. 

8.     Prepare a Postclosing Trial Balance

The postclosing trial balance shows the general ledger is in balance after the closing entries are posted. It is also used to verify that there are zero balances in revenue, expense, and drawing accounts.

9.     Interpret the Financial Information

Use financial statements to understand and communicate financial information and to make decisions. Accountants, owners, managers, and other interested parties interpret financial statements by comparing such things as profit, revenue, and expenses from one accounting period to the next.

Summary
By understanding the accounting cycle, you understand how data flows through an accounting system for a small business:

1.     Source documents are analyzed.

2.     Transactions are recorded in the general journal.

3.     Transactions are posted from the general journal to the general ledger.

4.     Financial information is proved, adjusted, and summarized on the worksheet.

5.     Financial information is reported on financial statements.