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The Accounting Cycle Steps - Research Paper Example

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The Accounting Cycle Steps Author Institution The Accounting Cycle Steps Introduction Accounting cycle details the steps that the preparation and recording of business transactions follows. All the activities involved in the recording and preparation of financial statements during a certain accounting period is what is referred as the accounting cycle…
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Download file to see previous pages Some of the financial statements prepared during the accounting cycle include the balance sheet, the income statement, statement of shareholders equity, as well as the cash flow statement (Agtarap-San, 2007). The accounting cycle may take place with regard to time in which the organization prepares its financial statements. For example, a business may prepare its financial statements on a yearly, quarterly, or monthly basis (Warren, 2010). This paper will discuss the steps of the accounting cycle right from the recording of transactions to preparing of financial statements. The Ten Steps of the Accounting Cycle Step 1-Analyzing Transactions There are ten steps involved in the accounting cycle; step one to three take place during the entire accounting period whereas the other steps from four ten occur in the end of an accounting period. The first step includes the analyzing of transactions. In this step, an organization look at the source documents, which include the description of the events and transactions. Source documents can either include electronic sources or hard copies. Some of the source documents that the organization analyzes during this step include cheques, bank statements, as well as purchase orders. The accounting department of the organization should receive all the source documents from the other departments (Warren, 2010). Step 2-Journalize The second step in the accounting cycle involves preparing journal entries, which is performed after the analysis of source documents, events, and transactions. During this step, the organization’s accountant uses the double-entry accounting method and rules to journalize. Therefore, there should be recording of transactions in two accounts; in addition, there is a requirement that the credits must be equal to the debits. Upon the application of the debit and credit rules, the transactions are then recorded in a journal. A journal entails a record that has the complete transactions (Agtarap-San, 2007). Step 3-Posting The third step in the accounting cycle includes posting, which entails the transfer of information from the journal entries in the journal to the ledger. The journal entry, comprising of both the debit and credit entries is posted in the ledger with both the credit and debit transactions. Thus, the posting step is the basic transfer of credits and debits from the journal and transferring them to the ledger. Before they are posted to the ledger, the journal entries should be scrutinized to ensure that they are accurate (Warren, 2010). Step 4-Trial Balance The fourth step includes the preparation of an adjusted trial balance, which refers to a list comprising of all accounts, as well as their balances. The information used in the preparation of the trial balance is derived from the ledger, with the account balances from the ledger being used in preparing a trial balance. In the trial balance, there is listing of transactions in the debit and credit column (Agtarap-San, 2007). Step 5-Preparing Adjusting entries The fifth step of the accounting cycle details the preparation of adjusting entries, which involves adjusting the liability or asset account to its actual amount. In addition, the adjusting of journal entries also details the updating of the expense or revenue account. To start with, there is recording of the adjusting entries in the general journal, after which they may be posted to the ...Download file to see next pagesRead More
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