Accounting with Vimukthi Peiris

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The Accounting Cycle, a step-by-step process accountants use to record and process financial transactions of a business. Here's a breakdown of each step in the cycle:

1. Collect Source Documents
This involves gathering all original documents related to financial transactions (e.g., invoices, receipts, bank statements).

2. Verify Source Documents
Check the accuracy and authenticity of the collected documents to ensure they are valid.

3. Analyze Transactions
Determine the financial effect of each transaction (e.g., what accounts are affected and how).

4. Journalize Transactions
Record transactions in the journal (book of original entry) in chronological order.

5. Post to Ledger
Transfer the journal entries to the ledger, where transactions are grouped by account.

6. Prepare Trial Balance
A list of all ledger account balances is prepared to ensure that total debits equal total credits.

7. Prepare Worksheet
An optional step to organize data and adjustments before creating final financial statements.

8. Prepare Financial Statements
Create reports like the income statement, balance sheet, and cash flow statement based on the trial balance and worksheet.

This cycle ensures that financial information is accurate, complete, and ready for decision-making or reporting.