Chapter 1
The Accounting Cycle
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Chapter 1 – The Accounting Cycle l Accounting 1, 7th Edition
Forms of Business Ownership
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•
•
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Sole Proprietorship
• Works alone or others may work for him
• Sole owner
• Sign might say J. Wouk, Carpenter
Partnership
• There is more than one owner (2 or more)
• Sign might say “Dewey, Chatum, and Howe”
Limited Company or Corporation
• Company is considered a type of legal person or legal entity
• Owned by shareholders
• Has own separate existence with separate rights and obligations
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The Accounting Cycle
This tutorial guides you through the eight steps of the accounting
cycle. The accounting cycle includes ongoing and yearly activities.
For more detailed instructions, refer to Section 1.4 of the Accounting 1
textbook.
You may wish to review the accounting cycle as you progress through
the course and encounter the steps in the cycle.
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Chapter 1 – The Accounting Cycle l Accounting 1, 7th Edition
The Accounting Cycle
Four of the steps occur in the outer ring.
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Chapter 1 – The Accounting Cycle l Accounting 1, 7th Edition
The Accounting Cycle
1. Transactions occur.
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Chapter 1 – The Accounting Cycle l Accounting 1, 7th Edition
The Accounting Cycle
2. Transactions are recorded in the journal.
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Chapter 1 – The Accounting Cycle l Accounting 1, 7th Edition
The Accounting Cycle
3. Journal entries are posted to ledger accounts.
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Chapter 1 – The Accounting Cycle l Accounting 1, 7th Edition
The Accounting Cycle
4. Trial balance and interim financial statements are prepared.
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Chapter 1 – The Accounting Cycle l Accounting 1, 7th Edition
The Accounting Cycle
These outer ring activities are ongoing and cyclical.
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Chapter 1 – The Accounting Cycle l Accounting 1, 7th Edition
The Accounting Cycle
Four of the steps occur in the inner ring.
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The Accounting Cycle
5. The worksheet is prepared.
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The Accounting Cycle
6. Formal financial statements are prepared.
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The Accounting Cycle
7. Ledger accounts are adjusted and closed.
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Chapter 1 – The Accounting Cycle l Accounting 1, 7th Edition
The Accounting Cycle
8. The post-closing trial balance is prepared.
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The Accounting Cycle
The cycle is complete and it begins to repeat itself.
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