The Accounting cycles are the Source Document, General Journal Entries, General Ledger, Trial Balance and Adjusting entries. Now that we know the names of the five accounting cycles, let us talk a little about each cycle, beginning with Source Document. When a business transaction occurs, a document known as the source document captures the key data of the transaction. The source document describes the basic facts of the transaction such as it date, purpose, and amount. Here are some examples of source documents: cash receipt, cancelled check, invoice sent or received, credit memo for a customer refund, and employee time sheet. The Source Document is the initial input to the accounting process and serves as objective evidence of the transaction, serving as part of the audit trail should the firm need to prove that a transaction occurred. The source document is an early document in the accounting cycle. It provides the information required to analyze and classify the transaction and to create the journal entries.
Next is the Journal Entries, after a transaction occurs and a source document is generated, the transaction is analyzed and entries are made in the General Journal. A journal is a chronological listing of the firm’s transaction, including the amounts, accounts that are affected, and in which direction the accounts are affected. Because the journal is where the information from the source document first enters the accounting system, it is known as the book of original entry.
The following cycle is General Ledger; the General Ledger is where all accounting transactions are posted in a double entry system using debits (on the left) and credits (on the right) for each transaction. An additional column to the far right can keep a running total of activity in the account, similar to your checkbook. The debit and credit entries impact at least two ledger accounts and it is usual to capture enough information in each leg of the entry to be able to...