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.
The accounting cycle summarized
In Chapter 1, you learned that when an event is a measurable business transaction, you need adequate proof of this transaction. Then, you analyze the transaction's effects on the accounting equation, Assets = Liabilities + Stockholders' equity. In Chapters 2 and 3, you performed other steps in the accounting cycle. Chapter 2 presented the eight steps in the accounting cycle as a preview of the content of Chapters 2 through 4. As a review, study the diagram of the eight steps in the accounting cycle in Exhibit 19. Remember that the first three steps occur during the accounting period and the last five occur at the end. The next section explains how to use the work sheet to facilitate the completion of the accounting cycle.