Accounting Cycle

Question 1

Define the accounting cycle

Answer 1

it is a process of identifying, collecting and summarizing financial transactions of the business with the objective of generating useful information in the form of three financial statements.

Question 2

What are the three financial statements relating to the accounting cycle?

Answer 2

cash flows, balance sheet and income statement

Question 3

The accounting cycle starts with an _______________ and ends when _____________

Answer 3

an accounting transaction, when the books of account get closed

Question 4

What is the purpose of the accounting cycle?

Answer 4

to ensure that all the money coming into or going out of a business is accounted for

Question 5

What are the most common reasons for an account imbalance?

Answer 5

1) forgetting a transaction
2) posting a transaction to the wrong account
3) posting a transaction as a debit instead of a credit or vice versa
4) duplicate postings
5) posting the wrong amounts

Question 6

What are the nine steps of the accounting cycle?

Answer 6

1) Collection of data and analysis of transactions
2) journalizing
3) record journals into the ledger accounts
4) create an unadjusted trial balance
5) performing adjusted entries
6) creating an adjusted trial balance
7) creating financial statements from the trial balance
8) closing the books
9) creating the post closing trial balance

Question 7

Name then briefly explain the first step of the accounting cycle

Answer 7

Collection of data and analysis of transactions

In this first step, the accountant of the company needs to collect the data and analyze the transactions. For a smoothly running business there would be many transactions and the accountant needs to look at each transaction, find out why it occurred, put it under the right accounts and then analyze it.

Question 8

Name then briefly explain the second step of the accounting cycle

Answer 8

Journalizing

After collecting and analyzing the transactions, entries should be recorded into the first books of accounts. In this step, each transaction transfers to the general journal. Under each entry, a narration written mentions the reason behind debiting or crediting one account

Question 9

Name then briefly explain the third step of the accounting cycle

Answer 9

Recording journals in the ledger accounts

After journalizing, entries should be made into the secondary books of accounts. Meaning that there will be two t-tables in the general ledger which will allow the accountant to get the closing balance, and then the balances of respective accounts will be transferred.

Question 10

Name then briefly explain the fourth step of the accounting cycle

Answer 10

creating an unadjusted trial balance