There are several steps, people and processes to the accounting cycle. Although I do not have a work experience with the accounting cycle myself but I have learn the basic understanding of how the accounting cycle works in general. The first step in the accounting cycle is identifying and measurement of transactions and other events. One must analysis the transactions and determines what must be recorded. There are guidelines that the GAAP provides for companies to follow (Kieso, Weygandt, & Warfield, 2007).
Companies should and need to record all transaction that deal with money even if it is a small amount. The next step is the journalizing the transactions. The company needs to record the transactions that affect its assets, liabilities, and equity. There are several journals to record the transactions in; general journal, cash receipts journal, cash disbursements journal, purchases journal, sales journal, and other special journals. The journal entries are in the form of credits and debits entries to the correct accounts. After journalizing comes posting. Posting is usually done once a month.
The journal entries are transferred to ledger accounts. There are four steps: post to debit account, enter debit account number, post to credit account, and enter credit account number. Next, is the trail balance preparation. The trail balance lists the accounts and their balances at the given time (Kieso et al. , 2007). Trail balances are usually prepared at the end of the companies accounting period. The accounts are listed in order to the way they are in order in the ledger. Debits are listed on the left column and the credits are listed on the right column.
The two columns need to be in agreement. The trail balance has three steps: listing accounts and balances, totaling the two columns and making sure the columns are equal. Adjusting entries are done after the trail balance. Adjusting entries are done at the end of the accounting period. This is done in order for companies to record revenues and expense in the accounting period they happened in. Accounts need to analysis that appears on the trail balance to make sure that they are complete and up-to-date (Kieso et al. , 2007).
If changes need to be made they will be done during this time. After adjusting entries are journalized and posted an adjusted trail balance needs to be completed. The adjusted trail balance shows all accounts balances; this includes the adjusted account balances at the end of the accounting period. This shows the true account balances for the end of the accounting period. Next, financial statements need to be prepared. The financial statements include the income statement, retained earnings statement, balance sheet, and cash flows.
The income statement shows amounts in gross profit on sales, income from operations, income before taxes, and net income. The retained earnings statement is used to show net income earned. The company can either retain the earnings or distribute it to the stockholders. This is where you will find the information is reported. Balance sheets show assets, and liabilities and stockholders’ equity totals for the ending of the accounting period. Closing process is what is done next in the accounting cycle. Closing is done to close nominal or temporary accounts to zero.
This allows for the accounts to be prepared for the next accounting period (Kieso et al. , 2007). Lastly companies can choose to do a post-closing trail balance and reversing entries. These last two are an option for the companies and they do not need to be down. In summary there are many steps, people and processes to the accounting cycle. Although I do not have a work experience with the accounting cycle myself but, I have learned much about how the accounting cycle is used in companies and the order that need to be followed.
In recapping the accounting cycle steps: Identifying and measurement of transactions and other events, journalizing, posting, preparing trail balance, adjusting entries, adjusting trail balance, statement preparation- income statement, retained earnings, balance sheet, and cash flows statement and closing nominal accounts. Understanding the accounting cycle is an important part of a company know matter how big or small the company is.
Kieso, D. E. , Weygandt, J. J. , & Warfield, T. D. (2007). Accounting Information Systems. In (Ed. ), Intermediate Accounting (12th ed. , pp. 62-124). . Retrieved from