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The accounting cycle is concerned with the collection, identification, analyzing, and recording of accounting events that occur in an organization or a company. It facilitates financial procedures that make it easy to understand business activities and transactions. With the help of the accounting cycle, a person who is not accustomed to business and does not know how to read financial records can easily understand business activities through the reports generated at the end of the accounting cycle. The accounting cycle is followed by every business organization to maintain its records of monetary transactions that take place in a year. It also helps in the calculation of comparative studies to measure growth and fall in business.
You can collect college accounting cycle help online on steps of the accounting cycle by clicking on the order now button. The steps of the accounting cycle are as follows.
At the very beginning, an organization identifies all the transactions that take place in a year while running and managing activities. These transactions are related to sales, payment, vendors, refunds, and so on. All the transactions that are included in the accounting cycle are identified under monetary terms.
The next step is recording transactions in a journal. Journal entries are based on the receipt of the invoice, completion of economic events, or recognition of sales. The transactions are recorded in chronological and systematic order in a journal. The journal keeps track of every monetary transaction that takes place in an organization.
After the transactions are recorded in the journal, they are then posted into their respective accounts in the general ledger. Each account provides activities and transactions that have taken place concerning that particular account only. Ledger helps in reducing carry forward balances at the end of the year.
An unadjusted trial balance is prepared after the posting of entries into the general ledger. It is prepared to make sure that the total debit balance is equal to the total credit balance. In case there is any difference between them both, the record that is checked in general and ledgers for omission or rectification.
The fifth step of an accounting cycle is to identify adjusting entries and analyze them in a worksheet. A worksheet is prepared by the accountant to ensure that debit and credit balances are equal. In case of any discrepancies, adjustments are made to rectify them.
Adjustment entries are made at the end of the accounting period; these are the results of corrections that are to be made in the worksheet. Adjustment entries include accrued interest and unearned income.
An organization has to prepare financial statements at the end of the accounting period. The financial statement comprises the balance sheet, profit and loss statement, income statements, and shareholder statement. All entries are adjusted before the preparation of the financial statement. A financial statement is reviewed by interested parties and shareholders for decision making.
Closing entries of an organization includes the transfer of net income into retained earnings, finalizing temporary accounts, expenses, and revenues for the period. Some companies also prepare post-trial balances to ensure that the credit and debit balances are equal and the posting of entries for the new financial year can begin.
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