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The Steps in Completing The Accounting Cycle - 958 Words - Coursework Example

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The Steps in Completing The Accounting Cycle - 958 Words - Coursework Example

Knowledge is power

Uploaded by

mtahir777945
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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The Steps in Completing the Accounting Cycle Coursework

Table of Contents

1. The Accounting Cycle


2. Financial Statements
3. Reversing Entries
4. Weekly Summary
5. Reference

The Accounting Cycle


The accounting cycle involves a number of steps and processes. The process begins with the analysis of all the transactions
that a firm has been involved in within a specified financial period. This includes income and expenditure transactions. It
involves the analysis of invoices and checks and ends with the preparation of a trial balance (Weygandt, 2008). The cycle is
made up of the following steps:

1. Recording of source documents

2. Making of the various journal entries

3. Preparation of ledger accounts

4. Preparation of the trial balance

5. Preparation of the financial statements

An adjusted trial balance contains the closing balances of the various ledger accounts that have been opened for a specific
financial period. These closing balance of ledgers are either debited or credited in the trial balance. To ensure that no errors
have occurred in the posting, the credit and the debit balance of an adjusted trial balance should always be equal to each other
(i.e. they should balance).

It is essential for a firm to prepare financial statements. These documents are essential since they represent a true and fair view
of a given firm. Financial statements are prepared with the use of the entries that have been posted in a trial balance. It is
therefore essential for an accountant to ensure that no errors have been made in the preparation of the trial balance. This
ensures that only the correct values are used to prepare financial statements. This therefore ensures that they represent a true
and fair view of the company (Weygandt, 2008).

The accounting cycle involves the five steps that have been mentioned above. Each one of these steps is essential as it forms
the basis of the next step. The step begins with the recording of source documents (checks, cash receipts and invoices),
preparation of ledger accounts of various transactions, the preparation of a trial balance and finally the preparation of financial
statements. If one of these steps is not involved, it will be impossible to prepare other essential financial documents. This in turn
means that the accounting standards, rules and procedures are not followed. As a result, the true and fair view of an
organization will not be reflected.

Financial Statements
Financial statements are the financial reports of an organization. Financial statements are prepared from the balances that have
been posted in a trial balance. They are used to show the financial status of an organization within a given fiscal year. The most
important financial statements in order of their preparation include:

1. The balance sheet


2. Cash flow statement

3. The income statement

4. The statement of changes in owners equity

5. Auditors report

In the running and operation of a business entity, financial statements are of great importance. This is because they are used as
reports to show the status of various aspects and sectors of the business. The main aim of financial statements is to give the
stakeholders of a business entity information pertaining the financial position and performance of the firm. Financial statements
are also used to give stakeholders information with regards to the cash flow of the firm. The auditor’s report is also essential
since it shows whether the financial statements and entries represent a true and fair view of a business entity. GAAP requires
firms to prepare these financial statements in order to meet the rules, standards and regulations that have been set by the
state. This ensures that there is uniformity on how these statements are prepared in all firms, whether public or private. GAAP
also needs these statements to be prepared in order to detect any irregularities in financial bookkeeping. Although all the data
that are used to prepare financial statements are contained in the trial balance, it is much easier for stakeholders to interpret
the data from financial statements and compare it with previously made financial statements to determine trends.

Reversing Entries
Reverse entries are the entries that are made at the end of a financial period to reflect its impact on the accounting process on
the next financial period. Normally, these are the closing balances of ledger accounts that are carried forward to the next
period. This is done to adjust entries that were made on accruing income and expenses of an accounting period that has
expired. If the closing balance of a specific account was a debit balance, its subsequent opening balance will be a credit (and
vice-versa for a credit closing balance). Reverse entries are essential since they remove the need of preparing compound.
Revenue and expenditure transactions normally require reverse entries (Weygandt, 2008).

Weekly Summary
This week’s learning has had a great impact on my accounting knowledge. From the various topics that we have covered in
class, I have been able to understand the need of various financial transactions, the manner in which they are prepared and the
overall outcome that they have on a business entity. I have gathered most of this information from group work, the study book
and my personal research. This information has improved my though process of various financial transactions.

As a result of this weeks learning, I have been able to know the accounting cycle. I now understand the need of keeping
financial records, making journal and ledger entries, preparing a trial balance and financial statements. At the same time, I am
able to prepare all these financial documents. I have also understood what financial statements are, the need to prepare them,
the importance they have in the running of a business entity and the rules, standards and regulations that govern their
preparing. Finally, I now understand the need for having reverse entries in bookkeeping and the transactions that require
reverse entries. With this knowledge and information, I believe I can undertake the process of bookkeeping at ease.

Reference
Weygandt, J. J. (2008). Financial accounting. Hoboken, NJ: John Wiley & Sons.

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