Accounting Cycle Paper
Accounting is a financial information system designed to record, classify, report, and interpret financial data. The accrual concepts states that accounting income is measured by matching the expenses incurred in a given accounting period with the revenues earned in that period. The accounting cycle is 6 steps.
The accounting cycle is a logical series of steps that accountants follow to keep necessary accounting records and prepare financial statements. The first two steps are very closely related and are accomplished during the month as transactions occur.
Step 1 involves sorting business transactions into an appropriate number of debits and credits to be entered on the accounting records.
Step 2 in accounting cycle involves recording this transaction (as debit and credit entries) in a journal for later posting to the general ledger.
Posting journal entries to the general ledger, step 3 in the cycle, is generally accomplished at the end of each month which is preparing trial balance. If no journal is maintained, transactions would simply be posted to the ledger as they occurred.
Step 4 in the accounting cycle involves making what are called adjusting entries to the general ledger.
Step 5 close and balance ledger
Step 6 prepares financial statements.
To aid in the preparation of financial statements, some companies will prepare a trial balance before they prepare financial statements. The trial balance is a list of all active accounts and each account’s debit or credit balance. The accounts are listed in the order they appear in the ledger assets first, then liabilities, stockholders’ equity, revenues, and expenses. By organizing accounts in this manner, the trial balance serves as a useful tool in preparing the financial statements. Adjusting entries are normally prepared at the end of each quarter or at the end of the year, although many firms...