Once the adjustments are recorded to general ledger on should prepare an adjusted trial balance. ich are the dfferences of the revenue and expense from the beginning of the month to the end of the month. Once the adjusted trial balance is prepared one moves to preparing the financial statements, the balance sheet (shows if the company has a net income or net loss), income statement (which shows that a firms assets= liabilities and owners’ equity) and lastly the statement of cash flow (shows what the changes in cash activities were). Once these financial statements are prepared and balance one can begin the year end closing process at the end of the yearly accounung cycle.
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The year-end closing process “carries forward budgetary account balance from one fiscal year to another. ” (oracle. com). the year-end closing process are the last two step performed as a part of the accounting process cycle. Step nine close temporary accounts to retained earnings and step ten prepare a post- closing trial balance. Closing the temporary accounts to retained earnings can be done in two ways one by posting all accounts to retained earnings Individual or two the most common used in bookkeeping, first you close the revenue and expense accounts to income summary and then close Income summary to retained earnings.
Once the closing entries are reported to the retained earnings a post- closing trail balance must be created. The purpose of the of the post-closing trial balance is to make sure the closing entries were posted right and that the accounts are ready for the next year. This paper has discussed the last five steps of the accounting processing cycle, for the purpose explalnlng the month -end and year-end closing process. As mentioned earlier all steps of the accounting process cycle will covered. Many will say the accounting process cycle has eight steps with step one being recording the ransactions.
But if one goes according to the textbook the first step is gathering Information of external transactions from source documents. Source documents are invoices, cash receipts and supplier bills. After the documents are
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collected one can proceed to step two, analyze transactions by 1 OF3 elements involved. (Spiceland p. 56). Now a good accountant will proceed to step three from here, record transactions to a Journal. A Journal is a record of all economic events that have affected the company. All Journals whether a special Journal or general have debit and credit sides.
Step four is when one post the Journal entries to the general ledger. By transferring the Journal entries to the specific accounts in the general ledger. Step five take the sums from the general ledger of the revenue and expense and prepare a pre-closing/ unadjusted trail balance. The purpose of a pre- closing trail balance “is to allow the check for the completeness and to prove that the sum of the accounts with debit balance equals balances of credits and are correct. (Spiceland 58). After is step is complete than it’s on to steps six through ten which are covered in the month-end and year-end closing procedures.
The closing process impacts the companys financial statements because preparing the financial statements is a part of the accounting closing process. The numbers used to prepare the financial statements are able to be easily accessible and determined because of following the steps and procedure of the accounting process cycle. This information is already analyze, calculated and posted before one can focus on preparing financial statements. Without going through the steps of the account process cycle a firms financial statements may not be accurate, following trail on cash flow will be extremely harder.
There are basic assumptions and principles that are involved in the month-end and year – end closing process. The GAAP requires a business to use the accrual basis of accounting instead of cash basis accounting. The accrual basis accounting “adheres to the revenue recognition, matching and cost principles”. (yahoo. answers. com). the second principle is revenue recognition principle. In which revenue is recognized when a product is delivered or the service is finished. Lastly the matching principle, in which the cost associated with doing business are recorded in the same period as the revenue the cost help to generate.
In order to omply the standards required by the GAAP for all business to adhere to, firms preform the adjusting entries and closing entries during the month-end and year- end closing periods. All companies should use the standards and practices in financial reporting because it will help to keep a firms finance accurate and correct. It will offer a more organized and accessible way to obtain financial information in regards to cost, losses and profits. A firm would be able to decide whether cost need to cut or production increased, they would be able to quickly distinguish the difference between products that sale more than others.
Using and adhering to these practices allows a company to follow the flow of cash involved in their business activities. My chosen career is accounting and the information I have learned in this project applies directly to my field. Learning the closing process gives me the knowledge of accounting procedures and the GAAP requirements that need to be followed in order to successful report financial information. This project has given me the knowledge behind the reasoning of why the accounting cycle process is performed and a better understanding of how each step directly leads to the next step. References Spiceland,J.
D. , Sepe,J. F. , & Nelson, M. (2012). Intermediate accounting (7th ed. , U. S. Federal Financials User Guide. Retrieved November 14, 2013, from http:// docs. oracle. cowcd/E18727 01 /doc. 121 lei 3551 ,T343342T345237. htm month-end closing. (n. d. ). BusinessDictionary. com. Retrieved November 14, 2013, from http:// www. businessdictionary. com/definition/month-end%20closing. html what accounting assumptions and principles are involved in the month-end and year-end closing process? How is?. (n. d. ). Yahoo! Answers. Retrieved November 14, 2013, from http:// answers. yahoo. com/question/index? qid=20121208153348AA04HuSSee More on General