What Is the Accounting Cycle?The accounting cycle is a collective process of identifying, analyzing, and recording the accounting events of a company. It is a standard 8-step process that begins when a transaction occurs and ends with its inclusion in the financial statements. Show
The key steps in the eight-step accounting cycle include recording journal entries, posting to the general ledger, calculating trial balances, making adjusting entries, and creating financial statements. Key Takeaways
Accounting CycleHow the Accounting Cycle WorksThe accounting cycle is a methodical set of rules to ensure the accuracy and conformity of financial statements. Computerized accounting systems and the uniform process of the accounting cycle have helped to reduce mathematical errors. Today, most software fully automates the accounting cycle, which results in less human effort and errors associated with manual processing. Steps of the Accounting CycleThere are eight steps to the accounting cycle.
Timing of the Accounting CycleThe accounting cycle is started and completed within an accounting period, the time in which financial statements are prepared. Accounting periods vary and depend on different factors; however, the most common type of accounting period is the annual period. During the accounting cycle, many transactions occur and are recorded. At the end of the year, financial statements are generally prepared, which are often required by regulation. Public entities are required to submit financial statements by certain dates. All public companies that do business in the U.S. are required to file registration statements, periodic reports, and other forms to the U.S. Securities and Exchange Commission. Therefore, their accounting cycle revolves around reporting requirement dates. The Accounting Cycle Vs. Budget CycleThe accounting cycle is different than the budget cycle. The accounting cycle focuses on historical events and ensures incurred financial transactions are reported correctly. Alternatively, the budget cycle relates to future operating performance and planning for future transactions. The accounting cycle assists in producing information for external users, while the budget cycle is mainly used for internal management purposes. Which one of the following statements best explains the posting reference in a journal and a ledger?Which of the following statements best explains the posting reference in a journal and a ledger? The posting reference creates a link between the journal and the ledger.
Which of the following statements is correct regarding the effect of debits and credits in accounts?Which of the following statements is correct regarding the effect of debits and credits in accounts? ~Your answer is correct. Assets are on the left side of the accounting equation, so to increase them, you would credit them. Revenues increase equity, so to increase a revenue account, you would debit it.
Which of the following statements is are correct regarding the definition of a liability quizlet?Which of the following statements is (are) correct regarding the definition of a liability? A liability is a debt owed by the business. A liability can be settled by transferring assets or providing products or services to others.
Which of the following statements is true regarding preparation of the balance sheet?The correct answer is d.
A balance sheet is a statement that provides information regarding the assets and liabilities of a company. Internally generated assets are not recorded in the balance sheet under US GAAP. It shows the ending balance as of a particular date.
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