Accounting cycle

Question 1

all 9 steps in the accounting cycle

Answer 1

1. collecting and analyzing data from source document
   - when a transaction occurs, a document is produced (bills etc.): external or internal
2. journalizing transactions
   - source documents are recorded in a journal, also known as a book of first entry
3. post to the ledgers
   - journal entries are transferred to a ledger (as purpose to bring together all transactions for a similar activity)
   - once all entries have been posted, the ledger accounts are added up in a process called “balancing”
4. unadjusted trial balance
   - work document that lists all the balances of the ledger
   - accountant produces a number of adjustments until satisfied
5. prepare adjustments
   - period-end adjustments are required to bring accounts in a proper balance
   - entry may be required to record revenue that’s earned, but not recorded yet
6. prepare an adjusted trial balance
   - similar to step 4, but this time adjusted entries are included
7. prepare financial statements
8. closing entries
   - to prevent not being added to or co-mingled of another period –> all balance to 0 again
   - income/loss goes to owners’ equity
   - only asset, liability and equity have balances
9. prepare post-closing trial balance
   - two-fold: to determine revenue+expenses are closed & to test the equity of debit & credit (ALE)

Question 2

4 types of financial statements

Answer 2

1. income statement: prepared from revenue, expenses, gains, losses
2. balance sheet: prepared from asset, liabilities,
   & equity accounts
3. statement of retained earnings: prepared from net income and dividend info
4. cash flow statement: derived from other financial statements (indirect, direct method)

Question 3

accruacl accounting definition

Answer 3

= reporting revenues/expenses when they happen instead of when cas is exchanges

Question 4

6 key concepts of accuracy accounting

Answer 4

1. revenue recognition principle = recognizes revenue when it’’s earned
2. expenses recognition principle = same
3. accounts receivable (AR) = money a company owes for goods/services provided, but not yet paid for (assets)
4. accounts payable (AP)= money a company owes from good/service received, but not yet paid for (liability)
5. prepaid expenses= payments made for goods/services that will be received in the future (assets + expensed overtime)
6. accrued expenses= expenses incurred, but not yet happened

Question 5

pros and cons of accrual accounting

Answer 5

pros
- more accurate financial picture
- better for larger business

cons
- complexity
- cash flow distortion