Accounting Cycle, Essay Example

A company performance is mostly evaluated by analysing its financial statements. Preparation of financial statements is the responsibility of the accounting department in an organization. This process of taking note of every step involved and recording to finally come up with a financial statement is what is referred to as the accounting cycle. Accounting cycle, also known as bookkeeping cycle therefore incorporates the activities starting from the first bit of the transaction to when it is recorded in the books of accounts.

The general steps involved in an accounting cycle as described by Answers (n.d.) start from data collection and analyzing. This involves recording of daily, weekly or monthly transactions and putting them into their respective classes then entering this information in the general journal or the book of original entry. Ford Motor Company (2009) records would record a $1 million cash sale of a Jaguar in the journal by debiting the cash amount and crediting the sale. The general journal consists of all the transactions so the next step is to transfer these entries in their individual ledgers so $1 million is debited in the cash account and the same figure goes to sales.  This helps in classifying them so that the correct balances for the accounts involved are got which are then posted in the unadjusted trial balance.

The accounts here are recorded according to their balance (the cash amount goes to he debit side while the sales balance is credited). Then adjustments (would include additional sales) are put into consideration to make a final preparation of the trial balance which is known as adjusted trial balance. Using the entries in the adjusted trial balance, the financial statements are finally prepared and the accounts closed out and the balancing figure taken to the balance sheet.  For instance the profit or loss derived from the difference between revenue and expenses is transferred to the balance sheet. These figures are then posted to the post-closing trial balance to countercheck the accuracy of the closed accounts. These are then presented to the management as complete financial statements.

References

Answers Corporation (n.d.). Accounting Cycle. Retrieved on February 23, 2010 from http://www.answers.com/topic/acounting-cycle

Ford Motor Company (2009). Ford Vehicles. Retrieved on November 4, 2009 from http://www.ford.com/