Completing the Accounting Cycle

This chapter will explain the steps required to complete the accounting cycle. This includes understanding the full accounting information cycle, and what is used to create the financial statements that will be provided to required and interested stakeholders. The accounting cycle happens every month for most companies, and requires distinct steps and cutoffs in order to create useful, consistent financial reports that managers can use to make decisions that improve the performance of the company. On a quartery and annual basis, financial statements are created for outside stakeholders as well.

A career in information systems

Have you ever heard the sayings "knowledge is power" or "information is money"? When people talk about accounting, what they are really talking about is information. The information used by businesses, as well as the technology that supports that information, represents some of the most valuable assets for organizations around the world. Very often, the success of a business depends on effective creation, management, and use of information.

As companies become ever more reliant on technology, the need for well-educated Management Information Systems (MIS) auditors and control professionals increases. Improved technology has the potential to dramatically improve business organizations and practices, reduce costs and exploit new business and investment opportunities. At the same time, companies face constant challenges in selecting and implementing these new technologies. Because of their high value and inherent complexity, the development, support, and auditing of information systems has become one of the fastest growing specialties in accounting.

Graduates with special interests and skills in computing and technology have expansive opportunities. In addition to traditional accounting and auditing functions, MIS professionals perform evaluations of technologies and communications protocols involving electronic data interchange, client servers, local and wide area networks, data communications, telecommunications, and integrated voice/data/video systems. In public accounting, technology has impacted the auditing profession by extending the knowledge required to draw conclusions and the skills required to audit advanced accounting and information systems.

With management consulting practices growing and information systems becoming a larger percentage of public accounting revenue, MIS professionals are in high demand. If you are considering a degree in computer or information systems, you should consider the advantages that an accounting major or minor can give you in working closely with businesses and consulting firms. A dual major in accounting and MIS is one of the most desirable undergraduate degree combinations in the workforce. This chapter explains two new steps in the accounting cycle – the preparation of the work sheet and closing entries. In addition, we briefly discuss the evolution of accounting systems and present a classified balance sheet. This balance sheet format more closely resembles actual company balance sheets. After completing this chapter, you will understand how accounting begins with source documents that are evidence of a business entity's transactions and ends with financial statements that show the solvency and profitability of the entity.