Completing the Accounting Cycle – Part II

Chapter 4

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Objective 1

Describe the accounting cycle.

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The accounting process that begins with analyzing and journalizing transactions and ends with preparing the accounting records for the next period’s transactions is called the accounting cycle. There are ten steps in the accounting cycle.

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2. Transactions are posted to the ledger.

3. An unadjusted trial balance is prepared.

4. Adjustment data are assembled and analyzed.

5. An optional end-of-period spreadsheet (work sheet) is prepared.

1. Transactions are analyzed and recorded in the journal.

(continued)

Accounting Cycle

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7. An adjusted trial balance is prepared.

8. Financial statements are prepared.

9. Closing entries are journalized and posted to the ledger.

10. A post-closing trial balance is prepared.

6. Adjusting entries are journalized and posted to the ledger.

Accounting Cycle (continued)

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From the following list of steps in the accounting cycle, identify what two steps are missing.a. Transactions are analyzed and recorded in the journal.b. Transactions are posted to the ledger.c. Adjustment data are assembled and analyzed.d. An optional end-of-period spreadsheet (work sheet) is prepared.e. Adjusting entries are journalized and posted to the ledger.f. Financial statements are prepared.g. Closing entries are journalized and posted to the ledger.h. A post-closing trial balance is prepared.

Example Exercise 4-6

Accounting Cycle

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The following two steps are missing: (1) the preparation of an unadjusted trial balance and (2) the preparation of the adjusted trial balance. The unadjusted trial balance should be prepared after step (b). The adjusted trial balance should be prepared after step (e).

Example Exercise 4-6 (continued)

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Illustrate the accounting cycle for one period.

Objective 2

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Journal entries for April, Kelly Consulting

Exhibit 9

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Journal entries for April, Kelly Consulting (continued)

Exhibit 9

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Unadjusted Trial Balance, Kelly ConsultingExhibit 10

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End-of-Period Spreadsheet (Work Sheet)Exhibit 11

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Adjusting Entries, Kelly Consulting

Exhibit 12

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Exhibit 13

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Financial Statements, Kelly ConsultingExhibit 14

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Financial Statements, Kelly Consulting (continued)

Exhibit 14

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Financial Statements, Kelly Consulting (continued)

Exhibit 14

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Closing Entries, Kelly ConsultingExhibit 15

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Closing Entries, Kelly ConsultingExhibit 15

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Ledger, Kelly ConsultingExhibit 17

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Ledger, Kelly Consulting (continued)Exhibit 17

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Ledger, Kelly Consulting (continued)Exhibit 17

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Ledger, Kelly Consulting (continued)Exhibit 17

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Explain what is meant by the fiscal year and the natural business year.

Objective 3

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The annual accounting period adopted by a business is known as its fiscal year. When a business adopts a fiscal year that ends when business activities have reached the lowest point in its annual operation, such a fiscal year is also called the natural year.

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Financial History of a Business

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THE END

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