The Simple 8 Steps

1. Analyzes Transactions

Financial transactions start the process. Transactions can include the sale or return of a product, the purchase of supplies for business activities, or any other financial activity that involves the exchange of the company’s assets, the establishment or payoff of a debt, or the deposit from or payout of money to the company’s owners.

2. Journalize Entries


3. Posting


4. Prepare Worksheet

Many times your first calculation of the trial balance shows that the books aren’t in balance. If that’s the case, you look for errors and make corrections called adjustments, which are tracked on a worksheet.

Adjustments are also made to account for the depreciation of assets and to adjust for one-time payments (such as insurance) that should be allocated on a monthly basis to more accurately match monthly expenses with monthly revenues. After you make and record adjustments, you take another trial balance to be sure the accounts are in balance.

5. Prepare Financial Statements


6. Adjusting journal entries


7. Post Adjusting and Closing Entries

You prepare the balance sheet and income statement using the corrected account balances. Post the adjusting and closing entries.

8. Prepare Post-Closing Trial Balance

Take the totals of the permanent at the end of each month. You close the books for the revenue and expense accounts and begin the entire cycle again with zero balances in those accounts.