Running head: ACC 201 MODULE TWO SHORT PAPER 1

ACC 201 Module Two Short Paper: The Accounting Cycle

Christian Meese

Southern New Hampshire University

ACC 201 Module Two Short Paper 2

In today’s economy, it’s of utmost importance that proper accounting procedures are

followed. If companies don’t follow the proper procedure, then bankruptcy and fraud will soon

follow. This paper will outline the accounting cycle steps, outputs, and the importance of each

step. To move further, let’s look at what the accounting cycle is and what the steps are.

The steps in the accounting cycle are as follows: Analyzing and Recording Transactions

in the Journal, Posting Transactions to the Ledger, Preparing an Unadjusted Trial Balance,

Assembling and Analyzing Adjustment Data, Preparing an Optional End-of-Period Spreadsheet,

Journalizing and Posting Adjusting Entries, Preparing an Adjusted Trial Balance, Preparing the

Financial Statements, Journalizing and Posting Closing Entries, and Preparing a Post-Closing

Trial Balance (Warren, C.S., Reeve, J. M., & Duchac, J. , 2017). In the first step, an accountant

will be looking at the accounts and see how each were affected during the time period. The

second step involved the accountant inputting the data as a credit or debit. The third step is

ensuring accuracy. An unadjusted trial balance will look at the debits and credits to make sure

the amounts posted are in the correct columns. In the fourth step, adjustments to accounts such as

prepaid expense, unearned revenue, accrued revenue, and accrued expenses will be made. The

fifth step is not necessarily required, although it does help to show the flow of accounting

information from the unadjusted trial balance to the adjusted trial balance. The sixth step of the

accounting process is to journalize and post the adjusted entries. This will affect accounts in the

income statement or balance statement. The seventh step is to prepare an adjusted trial balance.

This is used to verify the debit and credit balances. The eighth step is the most important part of

this whole process. When a proper financial statement is prepared, it will show how the company

is doing financially, it also will show shareholders how much money they made during the

quarter or year. The ninth step is to post the closing entries. The closing entries separate the
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ending balance with the starting balance of the next quarter or year. The last step is to verify the

balances at the beginning of the next quarter or year.

The major products of the accounting cycle all start with the financial statement. The

first major product is the income statement. In the income statement, an accountant would

subtract all the earnings from the expenses to get the net income. The next major product is the

retained earnings statement. The next major product that comes from the accounting cycle is the

balance sheet. The balance sheet will show the total amounts for all assets and liabilities. The

last product that comes from the accounting cycle is the stockholder equity statement. This will

show stockholders their retained earnings, common stock, and their total equity.

It cannot be understated just how important every step of the accounting process is. If

any step is omitted, there is a good chance everything will fall apart. If an accountant doesn’t

prepare an unadjusted trial balance, there is a good chance they could miss an account that had

an adjusted balance, therefore bypassing accuracy. If they were to not post the closing entries,

problems from the previous quarter or year could bleed into the following period. This would

result in problems for the foreseeable future until the problem was noticed and corrected. If an

accountant were to not prepare a financial statement, the whole company could fall apart. Due to

the importance of this step, it’s critical that this is done. This statement shows where the

company is and where it is heading financially. This gives a company time to make adjustments

before a large situation arises.

The accounting process may seem trivial to some, but these people don’t realize just how

important this part is for a company’s success or failure. With the economy how it currently is,

it’s so important for a company to know where their money is going and how to adjust

accordingly. If a company fails to follow this process through to the end, it will inevitably fail
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because they won’t know if their profitable or if they’re heading towards bankruptcy.
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Reference

Warren, C.S., Reeve, J. M., & Duchac, J. (2017). Corporate financial accounting (14th ed.).

Boston, MA: Cengage Learning.