Select a company you are familiar with.
Explain each step of the accounting cycle. Describe at least one transaction that would occur at the company you selected in each of these steps
This site should help you.
http://www.quickmba.com/accounting/fin/cycle/
Sure! Let's say I am familiar with ABC Company, which is a manufacturing company. I will explain each step of the accounting cycle and provide an example transaction for ABC Company in each step:
1. Analyzing and Recording Transactions: This step involves identifying and analyzing business transactions and recording them in the company's general journal. For example, ABC Company purchases raw materials worth $10,000 to be used in its manufacturing process. The transaction would be recorded by debiting the Raw Materials Inventory account and crediting the Accounts Payable account.
2. Posting to the Ledger: In this step, the transactions recorded in the general journal are transferred to the company's general ledger, which consists of individual accounts. The ledger is organized by account types, such as assets, liabilities, equity, revenues, and expenses. Continuing from the previous example, the $10,000 debit to the Raw Materials Inventory account would be posted to the ledger under the Raw Materials Inventory account.
3. Preparing a Trial Balance: After posting the transactions to the ledger, a trial balance is prepared to ensure that debits equal credits and check for accuracy. It lists the balances of all accounts at a specific point in time. For instance, ABC Company prepares a trial balance after completing all the postings, confirming that the total debits equal the total credits.
4. Adjusting Entries: Adjusting entries are made at the end of an accounting period to update the accounts and ensure that revenues and expenses are recognized in the correct period. Let's say ABC Company has prepaid insurance for $2,400 and needs to recognize the portion that has expired during the accounting period. An adjusting entry would be made by debiting the Insurance Expense account for the expired portion and crediting the Prepaid Insurance account.
5. Preparing Financial Statements: Financial statements summarize the company's financial position and operating performance. The main statements are the income statement, balance sheet, and cash flow statement. ABC Company would prepare these statements based on the information in the adjusted trial balance.
6. Closing Entries: Closing entries are made at the end of an accounting period to transfer the balances of temporary accounts (revenues and expenses) to the retained earnings account. For example, ABC Company had $50,000 in revenue and $30,000 in expenses during the period. The revenue and expense accounts would be closed by transferring their balances to the Retained Earnings account.
7. Post-Closing Trial Balance: After the closing entries are made, a post-closing trial balance is prepared to ensure that all temporary accounts have been closed and the permanent accounts (assets, liabilities, and equity) have accurate balances. ABC Company would prepare this trial balance to verify that the closing entries were executed correctly.
These are the basic steps of the accounting cycle, and they apply to most companies. The transactions provided for ABC Company are just examples and may vary depending on the specific circumstances and nature of the company's operations.