Running head: ACC 201 MODULE TWO SHORT PAPER 1

ACC 201 Module Two Short Paper: The Accounting Cycle

[Your Name]

Southern New Hampshire University

ACC 201 Module Two Short Paper 2

This paper is going to explain the accounting cycle in terms of the steps involved in it

and the products yielding from this process. The paper further shows how the accounting cycle is

important for any business and what problems it can face if a business does not follow the steps

of the accounting cycle. The steps which are crucial to be taken for any business are also

mentioned.

The accounting cycle starts with the analyzing and identification of the transactions

which are then entered into the system. However not all events are entered into the system only

the ones pertaining to the business are included. The accounting cycle then moves to the

recording of these entries into the journal which is then posted into the ledger. The ledger helps

in the preparation of the unadjusted trial balance in which all credit and debit balances are added.

Next is the step for adjusting entries in which accrual basis of accounting is applied. The

adjusted trial balance is then prepared which leads to the preparation of the financial statements.

Closing entries are then entered into the journal for the income statement as well as for all

temporary accounts. Next is the step for the post-closing trial balance which is prepared for

testing the equality of the credits and debits after the closing entries are entered. Another optional

step of reversing entries can also be done in the end of the accounting cycle[ CITATION

Car08 \l 1033 ].

After the adjusted trial balance, the financial statements are prepared which is technically

the end product of the accounting cycle. The reports in which the financial information is

presented are called financial statements. There are four statements including the Statement of

Comprehensive Income, the statement of changes in equity, the statement of financial position

and the statement of the cash flows. Other than this, the notes to the financial statement are also

to be prepared. The statement of financial position shows the assets, liabilities, and equity
ACC 201 Module Two Short Paper 3

position at a given date. The income statement shows the profit and loss for the company in

terms of the revenue and expenses it incurred. The operating, investing and financing activities

and their cash inflows and outflows are shown in the cash flow statement. The equity statement

shows the movement of the equity over the time period[ CITATION Jam10 \l 1033 ].

The accounting cycle is important in the creation of the accurate entries and management

of the finances of the company. Each step of the accounting cycle has its own importance for the

business. Furthermore, each business follows nine or 10 steps as per the nature of the business.

The right order is often the most important aspect of the accounting cycle which cannot be

overlooked. The first step of identifying and analyzing the events of transactions is important as

any misleading analysis in this step would affect the whole cycle. For example, any mistake in

the recognition of the revenue expenditure would lead to miscalculation of the profit or loss for

the company. Similarly, the journal entry if entered wrong would result in wrong debit and credit

balances in the trial balance. Likewise, if adjusting entries would not be made, the trial balance

would remain unadjusted and the accrual accounts would enter into the new accounting period

unadjusted or with wrong balances[ CITATION Lit11 \l 1033 ].

Concluding, it is apparent that with all the steps only, either nine or ten, the accounting

cycle is not only important to be followed by any business, it is crucial to be followed in the

same order as well. Moreover, it is showed that the accounting cycle helps in collecting,

processing and communicating of the financial information within and outside the business.
ACC 201 Module Two Short Paper 4

Reference

Epstein, L. (2011). Bookkeeping For Dummies. John Wiley & Sons.

Heintz, J. A., & Parry, R. W. (2010). College Accounting, Chapters 1-27. Cengage Learning.
Warren, C. (2008). Survey of Accounting. Cengage Learning.