Businesses, Transactions Take Place. Transactions Essay

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Again, this is prepared to verify that all of the debits and credits equal.

Once this has been completed, the next step would be to prepare the financial statements. Information from the adjusted trial balance is used to prepare an income statement, a statement of owner's equity, and a balance sheet. An income statement is a summary of the revenue and expense accounts for a given time period. The statement of owner's equity shows the changes of the owner's equity for a given time period. This may include additional investments as well as withdraws. The balance sheet is a listing of all assets, liabilities, and owner's equity for a given time period. The financial statements are produced in that order as information from the income statement is used to complete the statement of owner's equity and the information from the statement of owner's equity is used to complete the balance sheet.

The next step would be to journalize and post the closing entries. The closing entries are prepared after the financial statements are completed. The purpose of the closing entries is to prepare the accounts for the next reporting cycle.

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The final step of the accounting cycle is to prepare a post-closing trial balance. The post-closing trial balance will verify the debits and credits equal in the permanent accounts and that all temporary accounts have a zero balance.

In all aspects of the accounting cycle strong ethics are very important. Ethics are moral principles that guide the conduct of individuals. (Warren, Reeve, Duchac, 24e, pg. 4) Unfortunately, accounting fraud has been seen all over in the business world. Inflated assets and earnings, overstated performance, and false transactions are just to name a few. All of these aspects are put into use in an attempt to make more money. Some would call it greed. Greed can come at a high price with million dollar fines, prison sentences, and ultimately the monetary losses of many people.

Conclusion

From the initial transaction to the preparation of the financial statements and the closing entries, the accounting cycle is series of steps used to complete and verify the financial make up of a business.….....

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