3.2. Pedaling Through the Bookkeeping Cycle

Figure 3-1 presents an overview of the bookkeeping cycle side-by-side with elements of the accounting system. You can follow the basic bookkeeping steps down the left side. The accounting elements are shown in the right column. The basic steps in the bookkeeping sequence, explained briefly, are as follows. (See also "Managing the Bookkeeping and Accounting System," later in this chapter, for more details on some of these steps.)

Figure 3.1. The basic steps of the bookkeeping cycle, with the corresponding accounting functions.
  1. Prepare source documents for all transactions, operations, and other events of the business; source documents are the starting point in the bookkeeping process.

    When buying products, a business gets a purchase invoice from the supplier. When borrowing money from the bank, a business signs a note payable, a copy of which the business keeps. When a customer uses a credit card to buy the business's product, the business gets the credit card slip as evidence of the transaction. When preparing payroll checks, a business depends on salary rosters and time cards. All of these key business forms serve as sources of information into the bookkeeping system — in other words, information the bookkeeper uses in recording the financial effects of the activities of the business.

  2. Determine and enter in source documents the financial ...

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