Question

What is meant by Accounting Cycle? List its basic phases.

Hint:

The accounting cycle helps ensure the systematic processing of financial transactions, leading to accurate financial reports.

Answer 1

The accounting cycle refers to the complete process of recording and processing all financial transactions over a specific period. It helps in generating accurate financial statements. The basic phases of the accounting cycle include: 
1. Identifying Transactions: Recognizing financial transactions as they occur. 
2. Recording Transactions: Entering transaction data into journals. 
3. Posting to Ledger: Transferring journal entries to the respective accounts in the ledger. 
4. Trial Balance: Preparing a trial balance to ensure debits equal credits. 
5. Adjusting Entries: Making necessary adjustments for accrued or deferred transactions. 
6. Financial Statements: Preparing the income statement, balance sheet, and cash flow statement. 
7. Closing Entries: Closing temporary accounts and transferring their balances to permanent accounts.