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Steps in the accounting cycle and items on the balance sheet

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What are the steps of the accounting cycle? Why is it necessary to make adjusting entries at the end of each accounting period? What would happen if all of the steps of the accounting cycle were not completed in a specific accounting period?

What are some of the items that appear on a company's balance sheet?

Provide and explain an example from the business press that illustrates the consequences of a CPA or public accounting firm rendering an opinion based on unethical practices.

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Solution Summary

The solution discusses the steps of the accounting cycle, the importance of making the adjusting entries, what happens if the steps of the accounting cycle are not completed, items that appear in a balance sheet and an example that illustrates the consequences of an accounting firm rendering an opinion based on unethical practices. References are included.

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What are the steps of the accounting cycle?

1. Identify the event as a transaction and generate the source document.
2. Determine the transaction amount, the accounts that are affected, and in which direction.
3. Record the transaction in the journal as a debit and a credit.
4. Post the journal entries to the appropriate T-accounts in the ledger.
5. Calculate the trial balance to verify that the sum of the debits is equal to the sum of the credits.
6. Create the adjusting entries for accrued and deferred items, journalize them and post to the T-accounts in the ledger.
7. Adjust the trial balance after applying the adjusting entries.
8. Prepare the financial statements.
9. Transfer the balances of the temporary accounts to owner's equity.
10. Calculate the final trial balance after the closing entries are done.

Why is it necessary to make adjusting entries at the end of each accounting period?

Adjusting entries have to be done at the end of each accounting period to allocate revenue and expenses to the period in which they are actually applicable. The process of adjusting the entries is important ...

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