Research Paper on Accounting Cycle

Introduction

The objective of this research paper is to focus on the accounting cycle in regards to the key concepts which includes omission, role, and financial statement. Every particular concept aforementioned will be identified and analyzed, alongside the step of the accounting cycle. The discussion will include the significance of the accounting cycle to the business.

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The steps for the accounting cycles include the following: (a) identifying, collecting and analyzing transactions and document: only business events and transactions that affect the financial status of the business are included. Example personal loan by the entrepreneur is not included, but the business asset loan is included. (b) Recording transaction in journals (Books of Original Entry): recording is done with the double-entry bookkeeping system. Examples of the journal include Cash journal; General journal; Purchase journal; and Sales journal. (c) Posting the ledgers: this is a collection of the accounts that depicts the changes made to each account due to the past transactions alongside their current balances. Examples of the ledgers include creditors a/c, debtors a/c, purchases a/c, sales a/c, and so on. (d) Unadjusted Trial Balance: it is meant to equalize the credit and debit, using the reports from the ledger accounts. Examples of information created include creditors, debtors, salaries, income, purchases, sales, etc. (e) Adjusted entries: it is meant for accrual basis of accounting, it records earning and expenses that were not recorded in the journals. Examples of the entries include an accrual of expenses, income, deferrals (liability method or income method), prepayments (expense method or asset method), depreciation, and allowances. (f) Adjusted Trial Balance: it is created after adjusting entries, but before the financial statement; for example, balancing the creditors and the debtors. (g) Financial Statements: it is prepared when all information is up-to date and there is a balance between debit and credit. Example of what is gathered in the financial statement include Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Financial Position, cash flow Statement, and Notes to Financial Statements.

The main products of accounting cycle will be based on the financial statement, an example of its main part include the following: First, the Income statement, where all incomes and total expenditures are added up, and then the earnings are subtracted from the expenses to get the net income. Second is the retained earnings statement, this is the amount from the net income or profit from the company after the dividends are paid out to stockholders. Last but not least is the balance sheet, which you add up the total asset, liabilities, and stockholders' equity to get the total liabilities and stockholders' equity.

The objective of the accounting cycle is to assist the business' financial department to be aware of the financial transactions that take place in the organization. Upholding accuracy in finances enables the entrepreneur and stakeholders to get a comprehensive and detailed financial report that reflect the true picture of the businesses and assist in decision making on the plans for the future. Some of the important elements of the accounting cycle include the following: Journals, where the recording of every particular transaction that affects the business finance status is done. Ledgers, it shows the nature of the transaction that took place in the business. Unadjusted Trial Balance, it determines whether there was an error during the transaction when the credit and debit are not balanced. Financial statement provides comprehensive information on the general overview of the business' financial position.

Conclusion

Indeed the accounting cycle has robust significance to the business and its stakeholders. Every element of the accounting cycle are dependent on one another and the respective sequence has to be considered while recording the transaction. The following is the sequence, journals, ledgers, trial balance, Unadjusted Trial Balance, Adjusted entries, Adjusted Trial Balance, and Financial Statements. Accounting cycle promotes accuracy in the business financial information, develops a sense of accountability in the business, and gives a picture of business prediction.