Research Paper And Description Of Accounting Cycle (Essay Sample)

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Accounting cycle
The accounting cycle is well known as the fundamental set of processes that incorporate the recordkeeping system of finance of an organization. Throughout the life cycle of accounting or rather the whole course of a time period of accounting, numerous transactions of finance are likely to have taken place. Changes of the ownership of a company, customers’ incoming payments as well as vendors’ outgoing payments for their supplies are usually the common transactions for an organization. The above mentioned transactions are always recorded and later on transformed into financial statement whenever there exists a completion of an accounting cycle. The transformation of a recorded transaction into financial statement is done for an effective communication. A good number of organizations follow the rules implemented by the GAAP which is well known as the Generally Accepted Accounting Principles (Agtarap 581). Also, a company will be able to utilize the information obtained from the whole process pertaining the accounting cycle for internal decision making as well as external communication.
The accounting cycle is a set of rules arranged in a manner that enables a company to secure conformity and precise statement of finance. The mathematical errors that are associated with the process of accounting have been greatly reduced or rather minimized by the application of computerized accounting system (Munteanu and Laura 347). The following are the steps incorporated in the accounting cycle.
Transaction classification and journal entries
Identifying a transaction and classifying it, is always the first step in the cycle of accounting. Whenever a client purchases an item from an organization, it very crucial for the organization to record the transaction in an appropriate source document. In other words, after purchases are done in a company, an invoice is prepared and submitted to the department of accounting for the general ledger recording purposes (Cunningham et al. 203). In a good number of companies, transactions are recorded electronically and this reduces the occurrence of errors.
Trial balance and entry adjusting
Trial balance is always prepared after recording all the transactions on a general ledger. The trial balance takes all the general ledger accounts and ensures that the credit side is equal to the debit side. An error is detected whenever the credits are not equal to the debits. Such scenarios imply that there existed an error at some point in the cycle of accounting. This forces the organization to start checking through the entry of journals so as to try to locate the source of the error. Some companies utilize the application of accounting software that alerts the department of accounting the existence of a discrepancy (Weygandt 56).
Financial statement
After preparing the adjusted trial balance, financial statement is created. Balance sheet, cash flow statements, statement of income as well as retained earnings statements are among the vital financial statements in an organization (Weygandt 58). Each of the above mentioned financial statements serve purposes that are unique to each other and the statements are designed in a way that communicate financial data in a format that is well understood.