Accounting Cycle Essay

791 Words2 Pages

What is the Accounting Cycle?

The accounting cycle is a series of steps starting with recording business transactions and leading up to the preparation of financial statements. This financial process demonstrates the purpose of financial accounting–to create useful financial information in the form of general-purpose financial statements. In other words, the sole purpose of recording transactions and keeping track of expenses and revenues is turn this data into meaning financial information by presenting it in the form of a balance sheet, income statement, statement of owner’s equity, and statement of cash flows.
The accounting cycle is a set of steps that are repeated in the same order every period. The culmination of these steps is the preparation …show more content…

— Prepare the post closing trial balance for the next accounting period
9. — Prepare reversing entries to cancel temporary adjusting entries if applicable

What is Financial Statement Preparation?
Preparing general-purpose financial statements; including the balance sheet, income statement, statement of retained earnings, and statement of cash flows; is the most important step in the accounting cycle because it represents the purpose of financial accounting.
In other words, the concept financial reporting and the process of the accounting cycle are focused on providing external users with useful information in the form of financial statements. These statements are the end product of the accounting system in any company. Basically, preparing these statements is what financial accounting is all about.

How are Financial Statements Prepared?
Preparing general-purpose financial statements can be simple or complex depending on the size of the company. Some statements need footnote disclosures while other can be presented without any. Details like this generally depend on the purpose of the financial statements.
For instance, banks often want basic financials to verify the a company can pay its debts, while the SEC required audited financial statements from all public

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