A cycle repeats itself
- You make Journal Entries of Transactions on a daily basis into QuickBooks
Transactions involve the exchange of a product or service for value - QuickBooks automatically Post(s) Journal Entries to Ledger Accounts
- You can request QuickBooks to prodce an Unadjusted Trial Balance
If the debits and credits on an Unadjusted Trial Balance equal each other, it means that there were no arithmetic or entry errors - Either You or Your Accountant make Adjusting Entries
Adjusting Entries are made for things like:
Posting errors - e.g. something that was a transportation expense should have been recorded as an automobile expense
Depreciation and Depletion - the loss of value in assets
Prepayments - the loss of value for things that you pay up front like insurance
Physical Inventory - because people shoplift
- Dividends declared for stockholders in a corporation
- You or Your Accountant request an Adjusted Trial Balance from QuickBooks
An Adjusted Trial Balance combines Adjustments and Trial Balance amounts - You or Your Accountant close all Income and Expense Accounts
These are the accounts that appear on a Profit and Loss Statement
- Closing an income or expense account causes it to revert to a zero balance. Starting from a zero balance allows you to tell how much money was spent or earned during a specific time period, such as a year.
A profit can be transferred to the Equity Accounts as Retained Earnings. - You or Your Accountant request a Post-Closing Trial Balance from QuickBooks
When the books have been closed, the only accounts with amounts left are Assets, Liabilities, and Equity type accounts, which appear on the Balance Sheet - You or Your Accountant request Financial Statements from Quick books
Important Financial Reports: Profit and Loss Statement, Balance Sheet, Statement of Cash Flows
Thanks to Accounting for Dummies,
This process is a combination of a series of activities begin when a transaction take place and end with its inclusion in the financial statements at the end of the accounting period.The sequence of accounting procedures used to record, classify and summarize accounting information is often termed the Accounting cycle.
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