Accounting Cycles

Accounting Cycles

Every business utilizes accounting cycles to record transactions and prepare financial statements. There are eight basic steps in which an enterprise will use in order to create its financial statements: "(1) identifying and measuring transactions and other events; (2) journalizing; (3) posting; (4) preparing an unadjusted trial balance; (5) making adjusting entries; (6) preparing an adjusted trial balance; (7) preparing financial statements; and (8) closing." (Kieso, Weygandt, & Warfield, 2007, p. 93) It is important for any company to follow each of these steps appropriately in accordance with GAAP guidelines. In this paper I will be explaining the overall accounting process and describe the people, processes, and systems that are integral to this process.

Transactions.

"The first step in the accounting cycle is analysis of transactions and selected other events." (Kieso, Weygandt, & Warfield, 2007, p. 68) Some of the transactions and selected other events in which Tiffany and Company would report on their financial reports are not limited to jewelry and services; sterling silver flatware; picture frames and other decorative items. The FASB coined the phrase "transactions and other events and circumstances that affect a business enterprise" as a description of the foundation in which it will use to illustrate changes that occur within a company that affect its assets, liabilities, and equity. There are two types of events that can affect a company's assets, liabilities, and equity: external events (i.e. transactions), interaction among an entity and another party; and internal events, changes that occur within production processes. All in all a corporation reports any and all transactions possible that will have an effect on its financial position.

Journalizing.

There are several types of journals in which an entity can use: a general journal, and a special journal. A general journal is the simplest form of a journal, chronologically listing all of the events and transactions that have taken place within the period. Special journals categorize each transaction to a specific account, i.e. assets, sales, etc. These listings are expressed in debits and credits for each of the accounts. Tiffany and Company's general journal would consist of, but not be limited to, the purchasing of gemstones and jewelry, jeweler equipment, the issuance of stock, the sale of merchandise, and payment for services rendered. Since there is so many different categories in which accountants would make reference to in Tiffany and Company's general journal, it is not far fetched to assume that the use of special journals is utilized.

Posting.

Posting is simply transferring journal entries within the general journal and/or special journal to the ledger accounts. There are four steps that must be completed to post within a ledger: enter the debited account(s) date, journal page, and debit amount shown within the journal; with the account number to which the debit amount was posted in the reference column; record the credited account(s) date, journal page, and credit amount listed in the journal; and finally, record the account number to which the credit amount was post into the reference column. Posting is considered compete when a company lists all of the posting reference numbers opposite of the account titles in the journal(s). The more detailed a posting is, the easier it is to find a specific transaction at a later time.

Trial Balance.

Following the posting of accounts, accountants create an unadjusted trial balance; this is basically a listing of all the accounts a company has and those account's balances. The accounts are listed in the order in which they appear in the general ledger, along with their balances. This is essentially the first time in which an accountant pulls together all of the transaction data within the company.

Adjusting Entries.

Adjusting entries are an important part of an accounting