The Accounting Cycle: Steps And Roles

In this essay, the author

• Explains the accounting cycle, the steps and roles will be explained and how they benefit a company to use them. omissions will also be explored and their potential damage.
• Describes the accounting cycle as the process by which companies produce their financial statements for a specific period.
• Explains the first step of accounting is to note all beginning account balances. source documents such as bank statements, purchase orders, or loan documentation must be analyzed to be sure they pertain to the business specifically.
• Explains how to journalize all transactions that affect the company. businesses use the double entry bookkeeping system to record transactions, and similar transactions are recorded under a shared account.
• Explains that posting the journal entries into accounts (also called posting to ledger) entails posting all the transactions from the second step into t-accounts that show all changes and their dates to each individual account.
• Explains that step four is to test the balance of the totals of credits and debits. if there is a discrepancy it must be fixed by going back over the journal entries and t-accounts to find the missing piece.
• Explains that step six is to adjust the entries just made into the trial balance. adjustments must be made for each account to reflect spent insurance, depreciation of equipment, use of supplies, and interest on outstanding payable accounts.
• Explains that step eight is to prepare the financial statements which will be explained in more detail later in this paper.
• Explains that closing entries transfer revenues, expenses, and dividend balances into the retained earnings so the company's books are prepared for the next period.
• Explains step ten, the last step, is the post-closing trial balance where only permanent accounts are listed and their ending balances are recorded.
• Explains that the omission of any of these steps can be greatly damaging to a company as their financial statements will be off misleading both potential investors and the company.
• Opines that omitting the adjusting process will give the company a false sense of what they are truly worth.
• Explains that omitting the closing of entries will prevent the company from knowing if they are successful or not at the end of the period.
• Explains the steps a business can take to avoid omitting accounting steps. companies can make employees aware of and empowered to use reporting systems if they detect fraud or steps being skipped in accounting.
• Explains the four major financial statements a business must create at the end of each financial period. financial statements help creditors and investors evaluate companies.
• Explains that the income statement summarizes if a company is profitable or not by totaling the businesses revenues and expenses. it also makes marks that can show whether the business is growing over time, and detect changes in gross profit margins.
• Explains that the statement of retained earnings shows how a business uses its earnings paying dividends or holding onto the earnings and investing in the growth of the business.
• Explains that the balance sheet shows a company's assets and who claims the assets whether they are creditors or stockholders.
• Explains that the bakery has $47,896.75 in cash which is 71% of the assets being liquid.
• Explains that the accounting cycle helps a business properly log all financial transactions and the statements at the end of the financial period help businesses understand the true position their business is in and what steps they can do to improve it.