Accounting Cycle
The cycle is an evidence pipeline
Each stage answers a different control question:
| Stage | Control question |
|---|---|
| Source | Did an authorised event occur, and what are its terms? |
| Journal | Was the event classified and dated correctly? |
| Ledger | What is the balance and transaction history by account? |
| Trial balance | Are debit and credit totals arithmetically equal? |
| Adjustment | What is incomplete, estimated or in the wrong period? |
| Statements | Are balances classified, aggregated and disclosed appropriately? |
Northstar month-end
Use the entries from Double-Entry, then add:
| Adjustment | Debit | Credit |
|---|---|---|
| One month’s equipment depreciation, £1,000 | Depreciation expense 1,000 | Accumulated depreciation 1,000 |
| Electricity used but not billed, £1,500 | Electricity expense 1,500 | Accrued expenses 1,500 |
| Customer service delivered from a prior advance, £2,000 | Contract liability 2,000 | Service revenue 2,000 |
Notice that none of these adjustments requires cash at month-end.
Follow both sides into the statements
Number each adjustment working so that a reader can follow it from the supporting evidence through the calculation and entry to the revised balance and its place in the statements. Northstar's three adjustments change the unadjusted figures as follows:
| Adjustment | Profit | Assets | Liabilities | Equity through profit |
|---|---|---|---|---|
| Depreciation | −1,000 | −1,000 | — | −1,000 |
| Electricity accrual | −1,500 | — | +1,500 | −1,500 |
| Service earned from advance | +2,000 | — | −2,000 | +2,000 |
| Net movement, £ | −500 | −1,000 | −500 | −500 |
The change in the equation still balances: assets fall £1,000; liabilities plus equity also fall £1,000. Depreciation reduces the equipment's carrying amount through accumulated depreciation, rather than reducing cash or recording a new payable.
Distinguish the adjustment amount from the closing balance. If accumulated depreciation was already £4,000, a £1,000 charge brings the closing credit balance to £5,000. That opening figure illustrates how a balance changes over the period; the movement checker below does not include a complete opening ledger.
After posting, recompute every affected ledger balance, then make the adjusted trial balance. Transfer income and expense balances to profit or loss and permanent balances to financial position; carry the resulting profit into equity once. The full financial-records practice lets you perform all these steps on one complete dataset.
Run the ledger check
Try editing an amount or adding an entry. The cell totals period movements and rejects an unbalanced journal. Because opening receivables and customer advances are not supplied, the output does not show complete closing balances. For example, a credit movement in receivables shows a reduction in that asset, not necessarily a liability. Use the complete adjustments-to-statements case to prepare a full adjusted trial balance.
Northstar journal movement check
The cell checks arithmetic balance. To decide whether £70,000 belongs in PPE or expenses, you still need to examine the transaction and its supporting evidence.
Errors a trial balance will not find
- omitting an event entirely;
- using the wrong but same-side account;
- recording the same wrong amount on both sides;
- recording in the wrong period;
- failing to make an estimate or impairment adjustment.
Closing versus adjusting
Adjusting entries complete the period-end balances and assign amounts to the correct period. After reporting, closing entries reset temporary income and expense accounts and transfer the period's result to equity. Asset, liability and continuing equity balances carry forward to the next period.
Quick check
A £1,500 accrual was omitted. The trial balance still agrees. Which reported amounts are likely misstated?