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Accounting Cycle

Essay by   •  March 11, 2013  •  Essay  •  980 Words (4 Pages)  •  1,256 Views

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Accounting Cycle

The accounting cycle are steps of accounting procedures used by organizations to record transactions and prepare financial statements. There are eight steps that make up the accounting cycle, identifying and measuring transactions and other events, journalizing, posting, preparing an unadjusted trial balance, making adjusting entries, preparing an adjusted trial balance, preparing financial statements, and closing. The topic of this paper is to explain the accounting cycle within the organization that I am affiliated with and the people, processes and systems that are part of the accounting cycle.

Identify transactions

The organization I work for is an accounting office. The steps in the accounting cycle are performed for different clients on a daily basis. The first step of the account cycle is to identify and measure transactions and events. The process begins in our office when our clients bring in their monthly statements, receipts, invoices and other source documents. The secretary pulls the client file and delivers the information to the bookkeeper that does the data entry or identifies and records transactions. This is when step one identifying and measuring transactions begins. The bookkeeper will identify income by reviewing the invoices and bank statements and the expenses by reviewing the checks and debits on the bank statement, credit card statements and cash receipts. The bookkeeper sorts the cash receipts and makes a spreadsheet.

Journalize

Next the transactions are recorded in the accounting information system. Quickbooks is the accounting system that we use to record the transactions. As the bookkeeper enters transactions into the system, Quickbooks completes some of the accounting cycle steps behind the scenes. This software is designed to help users that do not have extensive knowledge of accounting to produce accurate financial records. Many of our clients use this system and enter some transactions daily like invoices. Quickbooks completes step two in the accounting cycle, journalize. The general journal "chronologically lists transactions and other events, expressed in terms of debits and credits to accounts." (Hunt, Weygandt, & Warfield, 2007 p.69)

Posting

Posting is "the procedure of transferring journal entries to the ledger accounts" (Hunt, Weygandt, & Warfield, 2007 p.70) In Quickbooks this step is also done behind the scenes. For example when a deposit is recorded in the system, Quickbooks uses the double entry system accounting method to record a debit to the income account and a credit to the bank (asset account) and posted to the proper accounts.

Preparing an unadjusted trial balance

The fourth step in the accounting cycle is to prepare an unadjusted trial balance. A trial balance lists all the accounts and their balances at a time specified. This step and the following steps in the accounting cycle are completed by the staff accountants in the firm that I work for. Quickbooks does accumulate the data for the unadjusted trial balance from the transactions recorded. At this point in the accounting cycle, myself or the other staff accountant would review the data that makes up this report in Quickbooks to ensure the transactions entered were posted correctly. For example I look for account that have a negative balance and look to see if an entry was reversed or if an incorrect entry was made in any of the accounts.

Making adjusting entries

Step five in the accounting cycle is to make adjusting entries. I make adjusting entries to record depreciation, to payable accounts like sale tax payable and other accounts. The clients that

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