Describe and explain the accounting cycle.

Question

What will be an ideal response?

Answer 1

Answer:
The accounting cycle is the steps a firm takes to record its transactions and prepare financial statements. Transactions are first recorded in the accounting records. Each of these transactions is, generally, the result of an external transaction, such as recording a sale to a customer or the payment of wages to employees. Once all of the transactions have been recorded during the accounting period, the company prepares an unadjusted trial balance to ensure that the accounts balance. Then the company adjusts the accounting records to recognize a number of events that have occurred, but which have not yet been recorded. These might include the recognition of wage expense and the related wages payable for those employees who have earned wages, but have not yet been paid, or the recognition of depreciation expense for buildings and equipment. These adjustments are made at the end of the accounting period to properly adjust the accounting records in preparation of financial statements. Once all adjustments are made, the company prepares another "adjusted" trial balance. As the last step, financial statements are prepared and the temporary accounts are closed.