The 11 Steps of the Complete Accounting Cycle
The Accounting Information System (AIS) functions as a structured workflow that captures raw financial source documents, processes them through double-entry rules, and converts them into standardized financial outputs.
Accountants follow a continuous sequence of steps during each accounting period:
[Phase 1: Recording]
- Analyze transactions via source documents (invoices, receipts, payroll).
- Journalize transactions chronologically into the General Journal.
- Post journal entries to individual ledger accounts in the General Ledger.
[Phase 2: Summarizing & Reporting]
- Prepare an unadjusted Trial Balance to verify debit/credit equality.
- Assemble data needed for period-end adjustments.
- Formulate a multi-column Worksheet.
- Generate core Financial Statements.
- Journalize and post period-end Adjusting Entries.
- Journalize and post formal Closing Entries to clear temporary accounts.
- Construct a Post-Closing Trial Balance.
- Journalize and post Reversing Entries at the start of the new period.
Chart of Accounts: Element Classifications
To facilitate recording, similar transactional line items are grouped into individual designated structures called accounts and cataloged within a systematic Chart of Accounts.
1. Assets (Economic Resources Controlled by the Entity)
Current Assets (Liquid assets convertible to cash within one year):
- Cash: Currency, coins, and checking account balances.
- Notes Receivable: Formal written claims for unconditional future cash collection.
- Accounts Receivable: Outstanding credit claims from customers for services performed.
- Supplies: Unconsumed physical assets utilized in daily work operations.
- Prepaid Expenses: Upfront payments for benefits spanning future periods (e.g., Rent, Insurance).
Non-Current Assets (Long-term operational hard assets):
- Property, Plant, and Equipment (Tangible): Hard physical assets like Land, Buildings, Equipment, Machineries, and Furniture & Fixtures.
- Intangible Assets: Legal rights and non-physical values lacking physical form (e.g., Patents, Copyrights, Trademarks, Goodwill).
- Contra-Asset Accounts: Reductions linked directly to long-term assets (e.g., Accumulated Depreciation).
2. Liabilities (Present Legal Obligations Incurred via Past Events)
Current Liabilities (Debts due and payable within twelve months):
- Accounts Payable: Credit balances owed to suppliers for goods purchased.
- Notes Payable: Short-term formal written promises to pay specific financial sums.
- Accrued Expenses: Unpaid liabilities for obligations consumed during the period (e.g., Salaries Payable, Interest Payable, Taxes Payable).
- Unearned Revenues: Pre-collected cash values received before services are performed.
Non-Current Liabilities (Obligations maturing beyond one year):
- Long-Term Notes Payable: Formal extended loan liabilities.
- Mortgage Payable: Long-term bank debts secured by property real estate assets.
3. Capital / Owner's Equity (Residual Interest in Company Assets)
- Capital Account: Tracks the primary equity balance, owner contributions, and net income allocations.
- Drawing Account: Temporary debit-nature account tracking asset extractions for personal use.
- Income Summary: A temporary clearing account used solely during the year-end closing sequence.