1. Identify the transaction 2. Record the transaction as a journal entry 3. Post the entry in the individual accounts in ledgers. 4. Create preliminary trial balance 5. Adjusting entries 6. Create adjusted trial balance of the accounts 7. Combine sums in various accounts 8. Close books for current month
Permanent accounts are also known as real accounts. These are accounts that do not close at the end of the accounting year. The permanent accounts are all of the balance sheet accounts (asset accounts, liability accounts, owner’s equity accounts) except for the owner’s drawing account.
Temporary accounts are accounts that are closed at the end of each accounting year. In this are the income statement accounts (revenues, expenses, gains, losses). Summary accounts (such as income summary), and a sole proprietor’s drawing account.
At the end of any interim reporting period, the accounting processing cycle is now complete. The closing process serves a dual purpose. The temporary accounts (revenues, expenses, gains and losses) are reduced to zero balances, ready to measure activity in the upcoming accounting period, and the temporary account balances are closed to retained earnings to reflect the changes that have occurred in that account during the period. Another step is close revenues and expenses to income summary, and then income summary is closed to retained earnings.
Financial statements that are certified are one that an investor can trust to be the most accurate. The financial statements are reviewed and audited by a CPA (certified public accountant). The CPA gives their opinion on the quality and accuracy of the financial statements. They perform a comprehensive analysis of the company as