Accounting Cycle free essay sample

This paper seeks to prepare a training handout to help non-finance directors understand the accounting cycle. The paper starts with the definition of accounting cycle and then followed by the discussion of each step involved in the process with the cycle. The accounting cycle is a series of steps which are repeated every accounting period.   An accounting period may refer to time an interval when financial statements; hence it could be monthly or quarter or yearly. Usually it is monthly since corporations or business entities have their board meetings where management is required to provide the board members or directors an update of information on what is happening with the company and outside the company using financial reports or financial statements.  Ã‚   The   process will have to start with an identification of the transaction from the original source documents such as invoice, official receipts, checks that are cancelled, time cards and summaries, contracts, purchase invoice with requisitions slips and corresponding purchase orders if there are any. We will write a custom essay sample on Accounting Cycle or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Identify the transactions. In identifying the transaction, there is a need to determine whether the transaction is recordable or not. What will determine of what is recordable transaction is the effect of the transaction on the accounting elements which include the assets, liabilities, owners’ equity, revenues and expenses (Meigs and Meigs.1995). If indeed   the document verified warrants the recording of the transaction because the one or a combination of the accounting elements would be affected then, the accountant or the bookkeeper must extract the following information the from the documents:   the date, amount,   description or purpose of the transaction, name and address of the other parties involved if possible. Analyze the transactions. This will be followed by the analysis of the transaction where the accountant or bookkeeper will determine on which of the accounting elements are affected (Meigs and Meigs.1995). The possible effects are increase or decrease by a certain amount. Make and record the journal entries in the journals.   Make journal entries based on the transactions as analyzed.   Ã‚  Making journal entries involves making a debit or a number of debits and credit or a number of credits   and making its sure that   total debits   equal to total credits under the double entry bookkeeping system. In preparing the journal entries, it must be noted that the journal are kept in chronological order where the transactions first occurring during the month should be recorded ahead of the latter ones (Meigs and Meigs.1995). There is wisdom for doing this, since it is easier to locate and trace things when done this way and to allow regularity of recording as the accountant is expected to perform his or her functions regularly.   With the advent of computers, this chronological recording of transactions and events is encouraged if not automatic because documents, such as receipts and invoices, must come in their serial numbers as transactions are punched in into computer accounting system on a first come first served basis everyday. The journals may normally include the sales journal, purchase journal, cash receipts journal, cash payments journal and the general journal (Smartacus Corporation, 2008).   Cash transactions are recorded either in cash receipts or cash disbursements journal, while non-cash sale and purchases are recorded in the sales journal and purchase journal respectively. What cannot be recorded in the four special journals is recorded in general journal. Post to the Ledger. This process involves the transfer of journal entries or their summaries as afforded by the special journal to the general ledger. Before the transfer to the ledger, the accountant must make it sure that the total debits are equal to total credits from the journal books. Each account title is represented by a separate ledger. An accountant can never arrive at the correct ledger balances which must be derived at the end of the month also assuming again the financial statements are prepared monthly (Smartacus Corporation, 2008). Prepare the unadjusted trial balance. This is done by calculating to verify the sum of the debit and credit and to prove their equality. If the same are not in balance, there is an indication of an error along the way (Meigs and Meigs.1995). Therefore, before the accountant proceeds further, the accountant should go back and try to check the errors from identification to posting. Prepare the necessary adjustments. Adjusting entries are needed to update accounts that were originally recorded as well to recognize accrued and deferred items. This may include providing for bad debts expense from accounts receivable where collectibility is doubtful, providing for depreciation for depreciable non-current assets such as building and equipments.   Other adjustments include accruals and deferrals. Prepare adjusted trial balance. At this stage, the amounts from adjusting entries are integrated or combined to the balances from the trial balance; hence it is called, adjusted trial balances. It is best to prepare a worksheet from the unadjusted trial plus and minus and adjustments in producing the adjusted trial balance (Meigs and Meigs.1995). The worksheet should be extended to provide for income statement and balance sheet columns which must have debit and credit columns Prepare the financial statements. Preparation of the financial statements is the end products of the accounting cycle for purposes of providing information to decision makers (Smartacus Corporation, 2008). Financial statements are therefore making in proper form the data coming from the ten-column worksheet from which the adjusted trial balance and data from the income statement and balance sheet columns are found.