The Importance of Accounting Cycles

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Accounting Cycle
Intermediate Financial Accounting
July 11, 2011

Accounting Cycle
An accounting cycle is a sequence of six steps in the processing of financial transactions (from the time they occur to their inclusion in financial statements) pertaining to an accounting period. These steps are: (1) analyzing the transactions as they occur, (2) recording them in the journals, (3) posting debits and credits from journal entries to the general ledger, (4) adjusting the assets with a trial balance, (5) preparing financial statements, and (6) closing the temporary accounts. (Accounting Cycle, 2010, p. 1) United Healthcare is an organization that uses this accounting cycle. The company efficiently produces accurate financial statements through its people, processes, and systems. Analyzing Transactions

During each month, the company receives checks and wire transfers from many sources. Several lockboxes have been set-up through a designated banking institution to collect the hundreds of payments that come in for deposit. The information is transferred to the Cash Department and each transaction is analyzed to determine the purpose of the each payment. The correct code is applied and disbursed to the appropriate billing analyst for accurate posting to the individual accounts. The accounts payable department performs a similar process on the expenses that have been incurred during each month. Recording Transactions

Once these have been analyzed, the Accounts Receivable Department and the Accounts Payable Department record the transactions. The company uses the Oracle and People Soft database management systems for increased security and performance that will accommodate many users. An Accounts Receivable payment memo is created and the Billing Analyst uses this information to post the payments to the correct accounts. An Accounts Payable clerk creates vouchers with the correct coding prior to the bi-weekly check runs. These are analyzed prior...
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