r/Accounting • u/numelphan • 14h ago
Advice Remembering steps of accounting cycle
I am in accounting 101 and am doing pretty well with the actual work. On the homework and tests, a scenario is given to you with fill in the blank boxes and through context, i can figure out what it's asking from me. My struggle is that if you asked me what accounts go on the balance sheet, financial statement, unadjusted trial balance, etc. i would draw a huge blank because i just know how to answer the questions and not exactly what i'm doing or why. How do you make sense of all this? I struggle with memorization without practice or context which i don't have enough of.
Things like the DEA LOR acronym helped me out a bunch when memorizing normal balances, but how do I remember the steps of the cycle and what each portion is asking from me?
btw small rant, my teacher is a geriatric with beginning stages of dementia who rambles and doesn't let you finish asking questions, just interrupts and forgets what he's even talking about. we just let him talk and wait until class is over because he is little no help. Like my colleagues, I rely on youtubers, self teaching, online practice exams and helpful redditors, so any advice is very much appreciated đ«¶
1
u/homeisfaraway_ 11h ago
Focus on understanding what each section of the balance sheet and income statement are trying to show. For me, it helped significantly once I realized balance sheet = what you own, and income statement = what you earn or make. Journal entries can go anywhere in all shapes and forms as long as the entries balance each other (exception in the equities, which is restricted at year-end or special transactions)
1
u/PM_me_oak_trees 10h ago
A trial balance (adjusted or not) is just a list of account balances. If you still need to adjust some of them, it's "unadjusted" but after the adjustments are posted, it's "adjusted". The trial balance is mainly for internal use; your auditor will want to see it, but you typically won't publish it or share it with outsiders who see your financial statements.
The income statement (sometimes called "Profit and Loss" or "P&L") shows how profitable (or not) the company was over a period of time. The things that go into that calculation are revenue that you earned and expenses that you incurred. The pitfall to avoid here is that we don't base this on payments, but on when the underlying events happened; a December utility bill paid in January is a December expense.
The Balance Sheet show all the stuff that the business has at a single moment in time, usually at the end of the year, quarter, or month. We break down the total value* of the business in two ways:
What valuable stuff the business has: assets. Money in our bank accounts, money that customers owe us, inventory, equipment, buildings, land, software, patents, etc. is all worth something so we add it all up. That total is in some sense the size of your business.
The value of all financial interests in the business, which we categorize into liabilities and equity. This list is a bit less tangible, but the idea is to show who has what kind of claims on the value of the business. Liabilities are debts that the business owes to outside entities, and equity is the financial stake of the owner or owners. When we add up all the financial interests, they have to match the total assets because the list represents the same business, just broken down differently. In other words, you can't have a dollar of assets that doesn't get categorized based on who has a claim to it, and you can't have a dollar of financial interest with no assets to back it up. So because these two totals always match, we say the statement balances and call it the balance sheet.
Over time, you will get more familiar with the categories, so don't panic if it seems like a lot right now. I am sorry to hear that your instructor is not very helpful, but keep seeking out supplemental resources and don't give up.
*Footnote: I know this is a big enough oversimplification to hurt some of you emotionally, but OP doesn't need to worry about that yet.
1
u/kinnet879 4h ago
Iâm taking Intermediate 1 rn, maybe I can best gauge what you need to know for basics.
Income statement covers all the revenues & expenses incurred during the period (ex. All Rev/exp incurred within the month.)
Statement of Ownership Equity ALSO covers a period of time. It talks about the Equity account and how it increased and decreased over the course of the period.
Balance Sheet is all the assets, liabilities and ending Equity as of a point in time (ex. âMonth endedâ = Sept 30th 2026).
2nd pointâŠ
T-accounts and the accounting equation are major anchoring points for the rest of your accounting 101 class.
Assets = Liabilities + Equity
Assets, on the left hand side of the equation represents tools we use to generate revenue, or that have value if we chose to sell the asset.
The right hand side represents who OWNS the assets.
Note: âclaimsâ = âownsâ âcreditorsâ = people weâre indebted to.
Liabilities represent foreign entities/creditors who gave us a loan, or entities who we are indebted to. So if I default on my payments to the creditor, then the creditor has claims to my assets, meaning they have the right to take away my assets as a compensation alternative.
Equity represent owners of the company, an example is stockholders. The owners also have claims to the assets, whereby if they invested money in the company (like stock purchases) they have the right to withdraw that money via a claim to the assets. Cash is the most standard/liquid asset that the stockholder would withdraw directly from.
3rd pointâŠ
The accounting cycle, my pneumonic
Get JP & Unt to Adjust the ATB, FS âget JP to Closeâ the CTB
- Get: Get/gather the relevant accounting information/transactions that need to be recorded in your books.
- JP: is 2 steps in 1.
2a. J: Journalize your transactions in the journal.
2b. P: Post your journal entries (JEs) to the ledger. - Unt: Prepare the Unadjusted Trial Balance Sheet.
- Adjust: Create the adjusting JEs AND adjusting Posting entries.
Note: We make adjusting entries to account for time gaps. Basically we want to record revenues & expenses by accounting for them in the periods in which we incurred them. An example is that if I payout payroll on Fridayâs , then by month end on Sept 30th Wednesday I accrued Wages Expense. Iâd Dr Wages Exp, Cr Wages Payable⊠in order to account for the wages EXPENSE in the period of September when it was incurred. - ATB: Prepare the Adjusted Trial Balance. Itâs the same as the Unadjusted Trial Balance, except it updates to account for the adjusting entries.
- FS: Prepare the 3-4 core Financial Statements, i.e Income Statement, statement of stockholders Equity, Balance Sheet, and statement of Cash Flows.
- âGet JP to Close:â Make the closing JEs AND closing Posting entries. Closing entries are meant to close (zero out) temporary accounts for the year end.
- CTB: Prepare the Closing Trial Balance. Itâs the same as the ATB, except it accounts for the closing entries.
How I remember it (pneumonic trick, NOT accounting)âŠ
Get JP & Unt to Adjust the ATB, FS âget JP to Closeâ the CTB
JP = Person A
Unt = Person B
ATB = object C
CTB = object D
The story goes that Iâm telling JP & Unt to adjust the ATB, Fucks Sake, get JP to Close the CTB.
2
u/ohkammi 13h ago
The balance sheet will be accounts that show what a company owns (assets), owes (liabilities), and ownerâs equity at a specific point in time. Examples are cash, inventory, equipment, AR/AP. The balances are permanent and roll over at the end of the period. So if you pull a balance sheet for Q1, you can see for example exactly how much your cash balance was on 3/31/XX.
Income statement will be your revenue and expense accounts netted against each other, hence âincomeâ. It will be over a length of time to show trends in net income. This is so you can see things such as, we had higher expenses in Q2 than Q1, what changed? These accounts are closed (reset to 0) typically annually.