Accounting Process End of Period

Step 7

Correct any discrepancies in the trial balance. If the columns are not in balance, look for math errors, posting errors, and recording errors. Posting errors include: posting of the wrong amount, omitting a posting, posting in the wrong column, or posting more than once.

Step 9

Post adjusting entries to the ledger accounts.

Step 13

Post closing entries to the ledger accounts.

Step 8

Prepare adjusting entries to record accrued, deferred, and estimated amounts.

Step 12

Prepare closing journal entries that close temporary accounts such as revenues, expenses, gains, and losses. These accounts are closed to a temporary income summary account, from which the balance is transferred to the retained earnings account (capital). Any dividend or withdrawal accounts also are closed to capital.

Step 15

Prepare reversing journal entries (optional). Reversing journal entries often are used when there has been an accrual or deferral that was recorded as an adjusting entry on the last day of the accounting period. By reversing the adjusting entry, one avoids double counting the amount when the transaction occurs in the next period. A reversing journal entry is recorded on the first day of the new period.

Step 10

Prepare the adjusted trial balance. This step is similar to the preparation of the unadjusted trial balance, but this time the adjusting entries are included. Correct any errors that may be found.

Step 14

Prepare the after-closing trial balance to make sure that debits equal credits. At this point, only the permanent accounts appear since the temporary ones have been closed. Correct any errors.

Step 11

Prepare the financial statements. Income statement: prepared from the revenue, expenses, gains, and losses. Balance sheet: prepared from the assets, liabilities, and equity accounts. Statement of retained earnings: prepared from net income and dividend information. Cash flow statement: derived from the other financial statements using either the direct or indirect method.

Step 6

Prepare the trial balance to make sure that debits equal credits. The trial balance is a listing of all of the ledger accounts, with debits in the left column and credits in the right column. At this point no adjusting entries have been made. The actual sum of each column is not meaningful; what is important is that the sums be equal. Note that while out-of-balance columns indicate a recording error, balanced columns do not guarantee that there are no errors. For example, not recording a transaction or recording it in the wrong account would not cause an imbalance.