Accounting Cycle

To prepare financial statements, companies complete the accounting cycle. The adjusted trial balance for Company Zee is included below.

1-Provide an explanation for each step in the accounting cycle

1. The first step of any accounting cycle is the transaction.
2. After a transaction happens, the recording of the transaction is done in the book of accounts for any type of business firm. For this, the first step journal entries are passed in the general journal.
3. Secondly, the step comes in which the bookkeeper is to open a T account with the respective balances of the account at the beginning of the period.
4. After posting the balances in the T-accounts, the Trial balance is prepared in which all accounts are recorded separately in credit and debit balances. The total of all the debit balances needs to be equal to the total of all credit balances.
5. The next step is to prepare the financial statements.
6. At this point, at the end of the period, the company needs to see some results, for which it prepares an income statement, statement of financial position.
7. The next step is to make the adjustment entries in which the outstanding expenses and prepaid expenses are adjusted.
8. The next step is to prepare the adjusted trial balance. In this trial balance, the expenses and revenue accounts are balanced.
9. After this, the accountant is needed to enter the closing entries.
10. The next step is to prepare the closing trial balance in which the accurate amount of the books of accounts is shown.

2-Explain why permanent (balance sheet) accounts are not closed

The premarket accounts are the real accounts which show assets of the business whose balances are always carried over to the next period as the business is benefited from it over a long period.

3-Using the adjusted trial balance for Company Zee, complete the following

a-Describe the temporary (income statement) accounts for Company Zeeb.

The temporary accounts are the nominal accounts whose amounts are not transferred to another period and are hence to be closed at the end of the period. These are.

• Wage Expense
• Depreciation Expense
• Rent Expense
• Interest Expense
• Insurance Expense

b-Explain the closing entries that Company Zee will need to prepare at the end of the accounting period

Closing Entries for Zee Company

The Depreciation expense account will go on the accumulated depreciation account, hence not affecting the profit and loss account.

c-Explain the purpose of the Income Summary account

The income summary account is the one in which the revenue and expense accounts are transferred at the time of the period end. The net transfer is equal to the profit or loss of the business in that period.