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Accounting Cycle

Accounting cycle involves the overall process of recording and supervision of all the accounting proceedings in an organization for any accounting period. The process starts when a transaction happens and ends with its enclosure in the financial statements. My organization is a typical bar and restaurant offering catering services to the community. Before the description of the accounting cycle in my organization, it will be prudent to describe the people, processes and systems that will be integral to the cycle. The people instrumental to the restaurant include the accountants, customers and waiters. The customers initiate the transactions, whereas the accountants monitor these transactions to the end. The waiters are the image of the restaurant as the mode of their service would be essential in the attraction of the customers (Chari, 2007). The processes and systems that would be crucial for the system include the preparation of statements. These will then reflect the position and profitability of the restaurant plus all the assets present.

There are some ten distinct steps involved in the generation of my accounting cycle. It is very essential that each step be analysed carefully due to the impact of the previous step on the next. The first two steps in development of an accounting cycle of the restaurant would be identification and analysis of transactions (Chari, 2007). The sources of data for this step will be primary sources such as cashiers’ daily reports. In my restaurant, these transactions begin when a customer buys a meal or a drink, served by a waiter and a receipt issued for the meals consumed.
Steps three and four would involve posting of these transactions into the relevant entries. This will involve making of individual journal entries for each of the transaction performed and posting all the journal entries made into a general ledger (Sustek, 2011).  The processing of the individual journal entries depends heavily on the data gathered from the initial steps of the cycle.

After posting of all the journal entries for a definite period which may be a day or a week, a transfer of all the journal entries to a general ledger will reflect the total of the account balances. This procedure relies on the journal entries made previously. This ledger will be useful in preparation of the financial reports that are necessary in the analysis of the financial status of the restaurant. This requires proper diligence of all the accountants to avoid any erroneous entry.

The next three steps include the preparation of a trial balance, developing adjusting entries and later preparation of an adjusted trial balance (Chari, 2007). The information obtained from the general journal can be useful in the trial balance so as to imitate the balance sheet. This step is essential in balancing all the equity accounts and liabilities. Appropriate journal entries are essential to adjust the non cash items. At the end of this step, development of a modified trial balance will help in reflecting the flow of all the assets during the whole accounting period.
The next step of the accounting cycle of my restaurant will involve development of financial statements for both the internal and external uses. These statements will include cash flow statements, balance sheets, and income statements. The preparation of the statements depends heavily on the data acquired from the previous steps, especially the adjusted trial balance (Sustek, 2011). Cash flow statements are crucial in giving the cash position of my restaurant at any given time. The balance sheet reflects the restaurant’s holdings by giving the assets and liabilities. The income statement helps in the calculation of the net profit obtained in the company.

The last step of the cycle will include the closing steps in the accounting cycle. This will include temporary accounts like wage and revenue expenses that must be drained before the next cycle starts again. It involves making of closing entries to all the ledger accounts by transferring their balances to the owner equity accounts. Revenue accounts may also be transferred to retained earnings accounts so as to ensure that there is a zero balance for recording of new sales.


Chari, V. (2007). Business cycle accounting. Econometrica 75(3), 781-836.

Šustek, R. (2011). Monetary business cycle accounting. Review of Economic Dynamics 14(4), 592-612.