What are the steps in completing the accounting cycle? How do the different steps impact the financial statements? What is the impact on the financial statements of missing a step when completing the accounting cycle? Why is the accounting cycle important to the accounting process?
The accounting cycle, normally completed each month in most businesses, consists of the following steps:
1. Record transactions which include cash receipts, cash disbursements, purchases, sales and other general journal entries.
2. Post to the general ledger. Once the journals are completed and totaled, the total amounts are posted to the general ledger which is listing of accounts from the chart of accounts. For an example, an account prepaid insurance might have entries coming from more than one journal (cash disbursements for a payment, and general journal for the monthly expense write off).
3. Prepare a trial balance which lists all the general ledger account balances and is used to prove the mathematical accuracy of the ...
The nine steps of the accounting cycle are explained including the purpose of each and who might perform each step.