Accounting cycle
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Introduction
Most organization finds it a necessity to have an accounting cycle process with the aim of processing and organizing information and statements regarding their financial position at the end of each accounting period. This enable the stakeholder to project whether it is running at lose or making profit. Accounting process is an ongoing activity in a company and it is done repeatedly at the end of each accounting period. The accounting process varies significantly depending on various aspects such as the size of the organization in terms of operations and the number of accountants.
As the company expands its operations, the account complexity widens. Similarly, the number of accountant may also determine the accounting process. Companies are obligated to process financial information and must have a dedicated personnel assigned accounting labor. To meet their objectives, accountant must strictly follow the prescribed step by step process referred to as the accounting cycle (Kieso,2007,12th ed., Vol. 2). Quality service tax Inc. is a family operated company that started in 1997. At inception, the company had only two workers and had a partnership of two individuals. The company has since developed and has employed three employees to facilitate their growing operation and demands from its clients. One individual is assigned to fully oversee accounting cycle adhered to. The recent development at Quality service tax Inc, is the introduction of the automated software which is meant to reduce the burden of book keeping.
Accounting cycle process
Acounting cycle is a systematic process that follows generic steps of identifying and recording of business transactions then summarizing it and finally reporting to the management. The accounting cycle has a chain relationship with the previous stage in the accounting life cycle. The following is the Accounting cycle steps employed by Quality service tax Inc (Intermediate Accounting 12th Edition, Kieso, Weygandt, and Warfield).
Identification of the transaction is the initial step that triggers accounting cycle by identifying the transactions to be recorded. This entails pointing out transactions that have an economic value and can be expressed in monetary terms (Kieso, 2007 vol1). All sale or purchase transactions must be recorded in the accounting book.
Journalizing entails capturing transactions in a general journal which indicate information such as liability, asset, capital and stockholders’. Moreover, it shows the consequence of transactions which are generated from asset, liability, equity, expense and income.
Posting accounts is the third practice which involves transferring transactions records from a journal to the ledger book. The general ledger is organized in such a way that, all related transactions are wrapped together and summarized. For example, the account named “PURCHASES’’ will collect all purchases for that period.
A trial balance is list of all accounts and their balances for a particular accounting period. At the end of an accounting period, the company prepares a trial balance of all accounts in the same order they were posted in the ledger account along with debit and credit balances. The summation on each columns, credit and debits, should be equivalent as conceptualized by the PRINCIPLE OF DOUBLE ENTRY that guarantees no omission and error free accounts.
Adjusting transaction entries involves addition of earned revenues and incurred expenses into the accounts. Ordinarily, it is conducted at the end of each accounting period to facilitate the organization in tracking its revenue and expenses. As an example, an entry might be needed at the end of the accounting period to record revenue earned but is yet to be entered on the books. Likewise, an adjustment could be required to record an expense that has been incurred but yet to be recorded.
Adjusting trial balance is another stage which aim is to ensure that no omission and error are cascaded from transaction adjustment entries to the accounting process. In case of unequal credits and debits sums or if incorrect account is encountered, the discrepancy is investigated and corrected.
The next stage is modeling financial statements directly from the final and account balances from the adjusted trial balance. This useful in the drawing of useful information such as balance sheet, income statement, cash flow statement and retained earnings statement.
. To avoid translating accounts of one period to another period, all completed accounts in one accounting periods must be closed. Once the accounts are closed, all accounts that have balances such as liability, asset, and capital accounts are carried forward to the next accounting period.
Prepare a post-closing trial balance which facilitates final testing of both the debits and credit sums equality to ensure everything is in order before moving to the next stage of the accounting life.
Use of QuickBooks software to automate account cycle process
Apart from minimizing errors, QuickBooks software can also be used to ease the tedious work in the book keeping perform accounting arithmetic very fast. Furthermore, transactions can be captured, accessed, and updated simultaneously and this allows multiple stages of the accounting cycle to be performed almost concurrently. Several stages can be combined to one stage. Generation of financial report is also instant. In computer based tools, we need not testing for the equality of both debit and credit columns because validation is done during data. Closing process at the end of the period can also be done automatically by the computer.(Kieso, 2007,12th ed., Vol. 1).
Conclusion
In spite of the existence of automated accounting software’s, experienced personnel are still crucial in the accounting cycle. They are important in analyzing the transaction data before entry into the computer. In addition, accountant’s understanding and conclusion are often required to establish and administer adjustments that are desirable at the end of the reporting period.
References
Hunt, M. F. (2007). Problem solving survival guide (Vol. 1). Hoboken,
NJ: John Wiley & Sons.
Hunt, M. F. (2007). Problem solving survival guide (Vol. 2). Hoboken,
NJ: John Wiley & Sons.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007). Intermediate
accounting (12th ed.). Hoboken, NJ: John Wiley & Sons.
Kieso, D. W., Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007).
Intermediate accounting study guide (12th ed., Vol. 1). Hoboken, NJ:
John Wiley & Sons.
Kieso, D. W., Kieso, D. E., Weygandt,J. J., & Warfield, T. D. (2007).
Intermediate accounting study guide guide (12th ed., Vol. 2). Hoboken, NJ:John Wiley & Sons.
