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Accounting Cycle Essay

843 words - 4 pages



Accounting Cycle

ACC 421
March 2, 2014
Kimberly Barnett
Accounting Cycle
The accounting cycle is an important part of the financial accounting system for an organization to maintain an organized record of transactions and to report the company’s financial status. “The accounting cycle is a methodical set of rules to ensure the accuracy and conformity of financial statements” (Investopedia, 2015). Publicly traded corporations are required to report accurate and informed financial information through the Financial Accounting Standards Board (FASB) and the Security Exchange Commission (SEC). The corporations utilize the accounting cycle to ensure the financial ...view middle of the document...

“The purpose of transaction analysis is (1) It indicates the type of account involved, and (2) to determine whether a debit or credit is required” (Kieso, Weygandt, & Warfield, 2013). Posting the journal entries into the general ledger is normally done on a monthly basis. The accounting team of each division uses the general ledger to create a trial balance on a quarterly basis. “The trial balance lists the accounts in the order in which they appear in the ledger, with debit balances listed in the left column and credit balances listed in the right column” (Kieso, Weygandt, & Warfield, 2013). This step of the accounting cycle provides an avenue for the team to check for errors that have occurred in the journaling and posting steps of the cycle. The purpose of the trial balance is to ensure that all the account titles with their balances are recorded and that the debit and credit columns are equal. The accounting team of each division reaches out to the different units that report to them to see if any adjustments need to be made to the trial balance to account for unearned revenue, prepaid expenses, accrued revenues or accrued expenses. The purpose of the adjusting entries is to ensure the company complies with the revenue recognition principle and the expense recognition principle, which are requirements of GAAP. Once the team has gathered the appropriate adjusting entries, the entries are posted, and an adjusted trial balance is created. Each division reports all of this information to the organization’s head accounting department to use in compiling the accounting cycle for the entire organization. Once all of the information is compiled, an adjusted trial balance...

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