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    Understanding The Accounting Cycle in Trading Business

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    Hafidzi Derahman
    The accounting cycle for trading companies follows similar steps as the accounting cycle for service companies. It begins with identifying transactions, such as a seller delivering goods to a buyer. Transactions are recorded in journals and then posted to ledger accounts. A trial balance is prepared to ensure debits and credits are equal. Adjusting entries are made for errors or to record revenues and expenses in the proper period. Financial statements like the income statement, balance sheet, and capital statement are then prepared from the adjusted trial balance. Closing entries move income and expense accounts to capital. A final trial balance after closing confirms account balances are zero. Understanding the accounting cycle provides an accurate view of a company's financial position.

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    Understanding The Accounting Cycle in Trading Business

    Uploaded by

    Hafidzi Derahman
    96 views4 pages
    The accounting cycle for trading companies follows similar steps as the accounting cycle for service companies. It begins with identifying transactions, such as a seller delivering goods to a buyer. Transactions are recorded in journals and then posted to ledger accounts. A trial balance is prepared to ensure debits and credits are equal. Adjusting entries are made for errors or to record revenues and expenses in the proper period. Financial statements like the income statement, balance sheet, and capital statement are then prepared from the adjusted trial balance. Closing entries move income and expense accounts to capital. A final trial balance after closing confirms account balances are zero. Understanding the accounting cycle provides an accurate view of a company's financial position.

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    The accounting cycle for trading companies follows similar steps as the accounting cycle for service companies. It begins with identifying transactions, such as a seller delivering goods to a buyer. Transactions are recorded in journals and then posted to ledger accounts. A trial balance is prepared to ensure debits and credits are equal. Adjusting entries are made for errors or to record revenues and expenses in the proper period. Financial statements like the income statement, balance sheet, and capital statement are then prepared from the adjusted trial balance. Closing entries move income and expense accounts to capital. A final trial balance after closing confirms account balances are zero. Understanding the accounting cycle provides an accurate view of a company's financial position.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    96 views4 pages

    Understanding The Accounting Cycle in Trading Business

    Uploaded by

    Hafidzi Derahman
    The accounting cycle for trading companies follows similar steps as the accounting cycle for service companies. It begins with identifying transactions, such as a seller delivering goods to a buyer. Transactions are recorded in journals and then posted to ledger accounts. A trial balance is prepared to ensure debits and credits are equal. Adjusting entries are made for errors or to record revenues and expenses in the proper period. Financial statements like the income statement, balance sheet, and capital statement are then prepared from the adjusted trial balance. Closing entries move income and expense accounts to capital. A final trial balance after closing confirms account balances are zero. Understanding the accounting cycle provides an accurate view of a company's financial position.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 4

    Understanding The

    Accounting Cycle In
    Trading Business

    Accounting Cycle

    We often hear the company’s accounting cycle in the


    economic activities. What is company’s accounting cycle?.
    Accounting cycle is the process of making the company’s
    financial statements for a certain period of time.

    Generally, the accounting cycle starts from the transaction


    to the preparation of the company’s financial statements.
    Then followed by the balance closed with closing journals
    or until the reversing journal.

    Trading Company

    A trading company is a company which its main business


    is purchasing goods from a supplier and selling them to
    consumers without changing the shape of the goods. As
    an examples are grocery stores and supermarkets. These
    businesses purchase the daily necessities from suppliers
    and resell them to consumers.

    The Accounting Cycle In Trading Business


    The accounting cycle in a trading company is no different
    from the service company. Either the service company or
    the trading company should record all transactions in the
    journal and then periodically recorded in the accounts in
    ledger. By the end of the period, the accounts balances
    are calculated and stated in the worksheet as a tool for
    preparing financial reports. Adjusting journals and closing
    journals are also carried out within the trading company,
    as well as the preparation of a post-closing trial balance
    should be done as the final stage in the accounting cycle.

    1. Transaction Identification. Starting from a transaction


    by identifying the transactions in any account. At a
    trading company, a seller will deliver his products
    and receive payment from buyer. The transaction
    here is identified as cash sales transactions.
    2. Post to Ledger. The next step is to post to the ledger,.
    It is the process of transferring journaled accounts to
    each ledger.
    3. Make a Trial Balance. A trial balance lists the accounts
    used and their balance values serves to show that the
    debit and credit sides have balanced.
    4. Adjusting Journal. Adjusting entries are made when
    there are errors in journalizing and posting or to
    ensure the costs and revenues have been recorded in
    the correct period.
    5. Trial Balance After Adjustment. The next stage is a
    combination of trial balance and adjustment journal,
    commonly called the trial balance after adjustment
    (adjusted trial balance).
    6. Preparing Financial Statements. After a trial balance
    after adjustment is set, the next step is to prepare the
    financial statements. The financial statements are the
    end result of the accounting process which serves a
    summary of financial transactions. The financial
    statements are presented with the purpose to
    provide the information regarding to the position of
    assets, debt, and capital of the company. In general,
    financial statements include income statement,
    capital change statement, and balance sheet. At this
    stage the existing accounts on the trial balance after
    the adjustment are transferred to the financial
    statements in accordance with their financial
    statements. As an example for the balance sheet, the
    accounts related to the balance sheet are the group
    accounts of property, debt and capital. The income
    statement contains income and expense accounts.

    7. Make a Closing Journal. The next step is to make a


    closing journal of the accounts in the income
    statement that is the income and expense accounts.
    8. Trial Balance After Closing. The following stage is the
    trial balance after closing. Same as in the trial
    balance after the previous adjustment by combining
    the trial balance with closing entries. This will be
    stated in the profit loss statement with zero balance.
    9. Reversing Journal.Reversing journal is an optional so
    it does not have to make it. It only applies for specific
    transactions. For example, advanced income
    transactions or prepaid expenses are journalized as
    costs.
    Understanding accounting cycle for trading companies
    seems complicated. However it is necessary because it is
    the requirements in preparing financial
    statements. Understanding the flow of financial
    statement allows users to recognize the accurate financial
    position.

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