Accounting Cycle

What is the accounting cycle?

The accounting cycle is often described as a process that includes the following steps: identifying, collecting and analyzing documents and transactions, recording the transactions in journals, posting the journalized amounts to accounts in the general and subsidiary ledgers, preparing an unadjusted trial balance, perhaps preparing a worksheet, determining and recording adjusting entries, preparing an adjusted trial balance, preparing the financial statements, recording and posting closing entries, preparing a post-closing trial balance, and perhaps recording reversing entries. (www.accountingcoach.com/blog/accounting-cycle)

In remembering this cycle is just easy;

Source Documents - these are the transactions being done in the Business 

Journal - it is where you will identify the account title and where it belongs, debit or credit

Ledger - it is where all the accountant title is recorded all together 

Trial Balance - all accounts are being line up according to assets, payable and owners equity and check if accounts are balance to each other

Financial Statements - represent a formal record of the financial activities of an entity. These are written reports that quantify the financial strength, performance and liquidity of a company. Financial Statements reflect the financial effects of business transactions and events on the entity

Four Types of Financial Statements

1. Statement of Financial Position
Statement of Financial Position, also known as the Balance Sheet, presents the financial position of an entity at a given date.

Statement of Financial Position as at 31^st December 2013

	Notes	2013	2012
		USD	USD
ASSETS
Non-current assets
Property, plant & equipment	9	130,000	120,000
Goodwill	10	30,000	30,000
Intangible assets	11	60,000	50,000
		220,000	200,000
Current assets
Inventories	12	12,000	10,000
Trade receivables	13	25,000	30,000
Cash and cash equivalents	14	8,000	10,000
		45,000	50,000
TOTAL ASSETS		265,000	250,000
EQUITY AND LIABILITIES
Equity
Share capital	4	100,000	100,000
Retained earnings		50,000	40,000
Revaluation reserve	5	15,000	10,000
Total equity		165,000	150,000
Non-current liabilities
Long term borrowings	6	35,000	50,000
Current liabilities
Trade and other payables	7	35,000	25,000
Short-term borrowings	8	10,000	8,000
Current portion of long-term borrowings	6	15,000	15,000
Current tax payable	9	5,000	2,000
Total current liabilities		65,000	50,000
Total liabilities		100,000	100,000
TOTAL EQUITY AND LIABILITIES		265,000	250,000

2. Income Statement

Income Statement, also known as the Profit and Loss Statement, reports the company's financial performance in terms of net profit or loss over a specified period.

Income Statement for the Year Ended 31^st December 2013

	Notes	2013	2012
		USD	USD
Revenue	16	120,000	100,000
Cost of Sales	17	(65,000)	(55,000)
Gross Profit		55,000	45,000
Other Income	18	17,000	12,000
Distribution Cost	19	(10,000)	(8,000)
Administrative Expenses	20	(18,000)	(16,000)
Other Expenses	21	(3,000)	(2,000)
Finance Charges	22	(1,000)	(1,000)
		(15,000)	(15,000)
Profit before tax		40,000	30,000
Income tax	23	(12,000)	(9,000)
Net Profit		28,000	21,000

3. Cash Flow Statement

Cash Flow Statement, presents the movement in cash and bank balances over a period.

ABC PLC
Statement of Cash Flows for the year ended 31 December 2013

	Notes	2013	2012
		USD	USD
Cash flows from operating activities
Profit before tax		40,000	35,000
Adjustments for:
Depreciation	4	10,000	8,000
Amortization	4	8,000	7,500
Impairment losses	5	12,000	3,000
Bad debts written off	14	500	-
Interest expense	16	800	1,000
Gain on revaluation of investments		(21,000)	-
Interest income	15	(11,000)	(9,500)
Dividend income		(3,000)	(2,500)
Gain on disposal of fixed assets		(1,200)	(1,850)
		35,100	40,650
Working Capital Changes:
Movement in current assets:
(Increase) / Decrease in inventory		(1,000)	550
Decrease in trade receivables		3,000	1,400
Movement in current liabilities:
Increase / (Decrease) in trade payables		2,500	(1,300)
Cash generated from operations		39,600	41,300
Dividend paid		(8,000)	(6,000)
Income tax paid		(12,000)	(10,000)
Net cash from operating activities (A)		19,600	25,300
Cash flows from investing activities
Capital expenditure	4	(100,000)	(85,000)
Purchase of investments	11	(25,000)	-
Dividend received		5,000	3,000
Interest received		3,500	1,000
Proceeds from disposal of fixed assets		18,000	5,500
Proceeds from disposal of investments		2,500	2,200
Net cash used in investing activities (B)		(96,000)	(73,300)
Cash flows from financing activities
Issuance of share capital	6	1000,000	-
Bank loan received		-	100,000
Repayment of bank loan		(100,000)	-
Interest expense		(3,600)	(7,400)
Net cash from financing activities (C)		896,400	92,600
Net increase in cash & cash equivalents (A+B+C)		820,000	44,600
Cash and cash equivalents at start of the year		77,600	33,000
Cash and cash equivalents at end of the year	24	897,600	77,600

4. Statement of Changes in Equity

Statement of Changes in Equity, also known as the Statement of Retained Earnings, details the movement in owners' equity over a period.

ABC Plc
Statement of changes in equity for the year ended 31^st December 2012

	Share Capital	Retained Earnings	Revaluation Surplus	Total Equity
	USD	USD	USD	USD
Balance at 1 January 2011	100,000	30,000	-	130,000
Changes in accounting policy	-	-	-	-
Correction of prior period error	-	-	-	-
Restated balance	100,000	30,000	-	130,000
Changes in equity for the year 2011
Issue of share capital	-	-	-	-
Income for the year	-	25,000	-	25,000
Revaluation gain	-	-	10,000	10,000
Dividends	-	(15,000)	-	(15,000)
Balance at 31 December 2011	100,000	40,000	10,000	150,000
Changes in equity for the year 2012
Issue of share capital	-	-	-	-
Income for the year	-	30,000	-	30,000
Revaluation gain	-	-	5,000	5,000
Dividends	-	(20,000)	-	(20,000)
Balance at 31 December 2012	100,000	50,000	15,000	165,000

(http://accounting-simplified.com/financial/statements/types.html#sthash.oCecJB2N.dpuf)