In this paper we are suppose to explain the accounting cycle at our organization, however when I asked my boss the only information that he would give me was the that Circle K has a 13 periods in a year and that their calendar end on April 15. An accounting cycle is a logical series of steps that an accountant will follow to keep the necessary accounting records along with preparing financial statements. There are eight steps to the accounting cycle. The first step of the accounting cycle is to analysis transactions and selected other events. However one of the problems with this is to determine what to record and what not to record. The second step of the accounting cycle is journalizing. This means that the company needs to record the transactions and other events that were selected, that affect its assets, liabilities, and equities. The third step of the accounting cycle is posting. This is the procedure that involves transferring the journal entries to the ledger accounts. The fourth step of the accounting cycle is preparing an unadjusted trial balance. A company will normally prepare a trial balance at the end of the accounting period. This trial balance list all of the accounts in the order in which they appear on the ledger, the debt balances are listed in the left column and the credit balances are listed in the right column.
The fifth step of the accounting cycle is adjusting entries. By conducting adjusting entries it makes it possible to report on the balance sheet the appropriate assets, liabilities, and owner’s equity at the statement date. By also making adjusting entries it makes it possible to report on the income statement the proper revenues and expenses for the period. Also the debit and credit are supposed to be equal. When organizing the trail balance to make sure that the debit and credit are equal. A trial balance is a list of all of the ledger accounts, the debits will be in the left hand column and the credits will be in the right hand column. So far at this point there are no adjusting entries that have been made. It is important that the sums of each column are equal. If it is not equal then it means that there was a mistake that was made, which means that there was a recording error. If they are not in balance then you should take a look for posting errors, recording errors or math errors. Some of the posting errors could include (1) posting in the wrong column, (2) posting more than once, and (3) posting the wrong amount. The sixth step of the accounting cycle is preparing an adjusted trial balance.
The adjusted trial balance shows the balance of all of the accounts including the ones that were adjusted at the end of the accounting period. The seventh step of the accounting cycle is preparing financial statements. The financial statements can be prepared directly from the adjusted trial balance. Income statements are prepared from the revenue, expenses, gains, and the losses. The balance sheet is prepared from the assets, liabilities, and the equity accounts. A statement of retained earnings is prepared from the net income and the dividend information. And finally the cash flow statements are derived from the other financial statement using either the direct or indirect method. The eight step of the accounting cycle is closing. Closing journal entries close temporary accounts that are revenues, expenses, gains, and losses.
These accounts are then closed to a temporary income summary account, which the balance is then transferred to the retained earnings account (capital). Also any dividend or withdrawal accounts are closed to capital It is possible to prepare financial statements after closing journal entries by using a temporary income summary account to collect the balance of the temporary ledger accounts when they are closed. Instead of preparing the financial statements beforehand. When the financial statements are prepared then the temporary accounts will be closed. The people that are involved in the accounting cycle are (1) the Account Clerk, (2) Accountant, (3) Accounting Analyst, (4) Accounting Specialist, (5) cost accountant, (6) financial manager, (7) financial general manager, (8) Financial VP, (9) budget and planning manager, and (10) internal and external auditor. Normally these people assist with the preparation of new accounting systems designs. The processes that are involved in the accounting cycle are billing, dues, and conference registrations.
Kieso, D.E., Weygandt, J.J., & Warfield, T.D. (2010). Intermediate accounting 13th ed. Hoboken, NJ: Wiley.