The Accounting Cycle
The accounting cycle has a series of steps taken to ensure there remains balance with the company’s financials. These steps allow for companies to record transactions appropriately and prepare financial statements for each fiscal period. The financial statements can then be analyzed to determine a company’s financial position and to help them make decisions. Companies use the same methods and accounting cycle steps during each fiscal period to ensure consistent and logical decisions are made. The organization that I work for has an accounting cycle much like that of any other large company.
My organization uses the nine accounting cycle steps in the order they are meant to be used. The first step is to analyze all transactions and events that need to be recorded. Examples of transactions to be recorded would be new contract payments, returned overpayments, interest payments, new investor distributions, tax payments, new equipment, and the insurance of the office. All of these transactions affect the financial position of the company. These transactions are then recorded into a journal as the second step in the accounting cycle. This journal ensures that all transaction events can be located in one place even if they affect more than one account. These transactions can be found in a general ledger which expresses accounts into debts and credits.
The next step is the posting of the transactions from the journal entries to the ledger accounts. During posting, the information recorded includes the date, account title, reference account, and the amount being credited and debited. The company will then create a trial balance which lists accounts and their balances at a certain time. This balance ensures that a mathematical equality was kept after posting. Next, the company will prepare adjusting journal entries and post them to the ledgers. This step ensures that the revenue recognition and matching principles are...
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