You are a Director of Accounting and your Executive Director has asked you to put together a training handout that will help non-finance department directors understand the accounting cycle.
A really good strategy to use is to explain the accounting cycle, from start to finish.
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The steps in the accounting cycle are divided up into two periods. The first part shows the steps taken during the accounting period. That is, the time the transaction occurs. There are four steps included in this first half; the identification of the transaction, analyzing the transaction, making journal entries, and posting to ledger.
Accounting cycle begins with the occurrence of a transaction. Transaction is the financial description of each business event. For example, paying $1,000 for advertising is a transaction. Here the transaction is identified through an original source document such as an invoice or receipt that provides date, the amount involved in the transaction, for example.
The second step is analyzing the transaction. This is where you determine the amount that is involved in the transaction, which accounts are affected. There are four types of accounts. They are assets, liabilities, income, and expenses. Assets are things that the business owns. Liabilities are debts the business owes. Income is the revenue generated from the sale of goods or services. Expenses are the costs incurred in producing the goods and service. The example above; paying $1,000 for advertising, affects at least the expenses account. In this same step (2nd step), you will also figure which direction does the transaction affect the account. With the given transaction of advertisement, it will increase expenses by $1,000.
The third step is recording the transaction in journal ...
The solution examines putting together a training handout for non-finance departments directors to understand the accounting cycle.
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