According to Porter & Norton, (2007), accounting cycle refers to a series of steps that are performed in each accounting period and that climax in the preparation of some financial statements. The accounting cycle is necessitated by the time period principle of accounting that requires the preparation of financial statements on a periodic basis. In the items listed, three are steps in the accounting cycle. These are;
Post Transactions in the Ledger
The totals of various transactions are transferred from the journals to the ledger periodically. In a manual system, the frequency of posting the transactions depend on the level of activity in the business entity. The more the transactions, the higher the frequency at which they are posted to the ledger (Porter & Norton, 2007). In a computerized system, however, ledger postings can be done automatically whenever a transaction is entered in t5he journals.
Prepare an adjusted Trial Balance
Adjusted trial balance is prepared in the accounting cycle after the adjusting entries have been made. It is prepared using the balances of revenue and expense accounts, as well as balances in the assets, liabilities, and equity accounts. The adjusted trial balance is useful in the preparation of a number of financial statements such as statement of changes in stockholders' equity, statement of financial position, and income statement, (Porter & Norton, 2007).
Prepare a Post-Closing Trial Balance
Preparation of the post-closing trial balance represents the final step in the accounting cycle. It contains a list of all balances of ledger accounts that have been prepared after adjusting entries are made and posted to the ledger accounts. The purpose of its preparation is to ensure that the sum of all debit balances equals the sum of all credit balances before the new accounting period starts (Porter & Norton, 2007). The balances are also the opening balances for the ledger accounts in the subsequent accounting period.
Reference
Porter, G. & Norton, C. (2007). Financial Accounting: The Impact on Decision Makers (6th ed., pp. 177-182). Fort Worth, Tex.: Cengage Learning.
