Essay Sample on Accounting Basics: Steps, Outputs & Importance

Introduction

In every business or enterprise, financial information is one of the essential aspects which reflect the operations. When it comes to business, accounting is necessary because it helps in recording financial transactions that are related to that specific business. Therefore, this paper focuses on the steps of accounting, outputs as well as its importance.

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The accounting cycle is made of several steps that have to be followed to ensure success in the activities of a business. The first step of an accounting cycle is to identify as well as analyze all the business transactions as well as events that pertain to the business entity (Warren, Reeve & Duchac, 2017). The second step of an accounting cycle is to record the transactions in the journal, whereby all the financial information is included. The third step of the accounting cycle is posting. In this case, the recorded information is posted into the account within the general ledger, which allows the bookkeeper to monitor the financial positions (Warren, Reeve & Duchac, 2017). The fourth step of the accounting cycle is the unadjusted trial balance. The unadjusted trial balance helps the company to be aware of the unadjusted balances within its accounts. After that, the fifth step of the accounting cycle is a worksheet. The worksheet is created so that it can be used to ensure that all the debts, as well as the credits, are equal. If the debits and the credits are not equal, it will be necessary for the adjustments to be made. The sixth step is to adjust the journal entries, where it is necessary. The next phase of the accounting cycle is the financial statements whereby all the entries are generated in the financial statements such as the balance sheet, income statement, and the cash flow statement. The last step of the accounting cycle is closing the books whereby the closing statements are provided, which is a report of analysis over a specified period.

The accounting cycle is associated with significant products, which may be termed as outputs. The first output of the accounting cycle is the income statement. The income statement shows the revenue the company has earned as well as the expenses that have been spent (Gabriel, 2010). In this case, income that a business has made will be known easily. The second output of the accounting cycle is the retained earnings. The retained earnings are used to show the amount of money that a company keeps so that it can use it to distribute among the shareholders. The third output of the accounting cycle is the balance sheet (Gabriel, 2010). The balance sheet indicates the liabilities, capture assets, as well as the stockholders' equity within the company.

The accounting cycle is an essential aspect of business in various ways. One of the importance of the accounting cycle is that it helps business and companies to track their financial information. The tracking of financial information will help the business to discover their success and failures. After that, proper measures can be put in place to ensure that the failures are corrected for future success.

Conclusion

Concluding, it is clear that accounting is an important activity within an organization. Accounting helps in managing financial information, which is critical for the performance of the business. Proper approaches should be followed to ensure accounting is done in the right ways, and this can be achieved by following all the steps of the accounting cycle. Also, the steps of the accounting cycle should be followed so that it can the required outputs will be provided. Therefore, all organizations or enterprises should pay attention to the accounting cycle so that they can be able to track their financial information effectively.

References

Gabriel, S. J. (2010). Financial Accounting. Tata McGraw-Hill Education.

Warren, C., Reeve, J. M., & Duchac, J. (2017). Accounting. Cengage Learning.