The Accounting Cycle: Steps And Roles

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In this paper the accounting cycle, the steps and roles will be explained and how they benefit a company to use them. The omission of any of these steps will also be explored and their potential damage. Finally financial statements will be explained and their use to both the company and potential investors.
The accounting cycle can be described as “the process by which companies produce their financial statements for a specific period.” (Nobles, T. L., Mattison, B. L., Matsumura, E. M. 2014) The first three steps; beginning account balances, journalizing transactions, and posting journal entries are done during the financial period, while the last seven; computing unadjusted balances, entering unadjusted trial balances, journalizing adjusted …show more content…

The journal is either a physical book or electronic spreadsheet where transactions are recorded. Businesses use the double entry bookkeeping system to record all transactions, and similar transactions are recorded under a shared account such as, Service Revenue, Accounts Receivable, or Accounts Payable. With each transaction recorded two entries must be made, one to debit an account and another to credit an account. For example if Cash was received for Common Stock the Cash account would be debited and the Common Stock account would be …show more content…

Financial statements help creditors and investors evaluate companies. Auditor use financial statements to get a sense of the overall financial health of a company, creditors to determine credit risk, financial analysts to analyze stock investment, and all others to see the financial data in relevant terms.
The Income Statement summarizes if a company is profitable or not by totaling the businesses revenues and expenses then reports if there is a net income or a net loss for the financial period. The income statement is also useful as it will make marks that can show if a business is growing over time, and detect changes in gross profit margins, and operating profit margins. For example if a business reported $150,000 for Quarter 1 Income Statement, $200,000 Q2, $100,000 Q3, and $300,000 Q4 the business overall is making a profit, but its overall growth is very slow, only $150,000 difference between Q1 and

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