Introduction
The registration and accounting of the operations that are generated in an economic organization is carried out with the intention of integrating a database that allows its use, it is in order to generate information for decision-making of the different external users of the financial Accounting.
The accumulation of information recorded at the end is represented by the basic financial statements, which are a statement of financial position, also known as a balance sheet, the statement of income, the statement of changes in the financial position and the statement of changes in capital. accountant.
The accounting cycle can be seen as the process that is carried out to obtain the financial statements as the final product, through the analysis of these, achieving useful financial information for users. This essay tries to know the cycle of the operations of an entity from the accounting, fiscal and financial point of view.
The accounting cycle begins from the analysis of a transaction through the recording of operations and a series of procedures until reaching the end with the financial statement. The accounting cycle according to Gerardo Guajardo Cantú is detailed below.
The accounting cycle can be structured in ten steps, viz.
- Analysis of transactions. Record of operations in the General Journal. Classification of movements in the general ledger. Preparation of trial balance. Record of adjustments entries is in the general journal. Classification of movements generated by the entries of adjustments in the general ledger. Preparation of the adjusted trial balance. Preparation of the financial statements. Preparation of procedures for the closing of the accounting period. Analysis of financial information.
1. Analysis of transactions
In the business world, every day there are countless situations that may or may not affect a company, which depends on various factors.
A transaction from the accounting point of view, is generated as long as an economic event affects some of the basic accounting accounts. The identification of a transaction is very important because the accounting record decision depends on that fact.
As an example of transactions within an economic entity we can mention the following:
- The sale of a product or service, the payment of wages, the collection of an account receivable, etc.
2. Record of operations in the general newspaper
Mercantile activities or operations occur every day when investments are made in the business, products or services are sold to customers, purchases are made from suppliers and debts are paid, these operations must be recorded in an orderly manner. The most basic way to do this is to record each transaction in a general journal.
General journal concept
The general diary is a book or magnetic medium in which all the transactions carried out in a business are recorded, chronologically, in accordance with accounting principles and depending on the effect they have had on the five basic accounts of assets, liabilities, capital, income and expense.
With this step, the business accounting process acquires a complete history or record of events, in chronological order and in one place. Each registered operation must have, at least, an equal charge and compensation payment.
At all times the sum of the charges must be equal to the sum of the fertilizers, an accounting mechanism known as double-entry accounting.
The process of recording business operations or transactions in the general newspaper is called settling.
The seven basic parts of a journal entry are:
- date name of the account to load name of the account to credit amount is to load quantity is to credit explanation
3. Classification of movements in the general major
Senior concept
The major is a book or magnetic medium where an individual, or separate, record of increases or decreases of specific accounts within the accounting system is made. In other words, there is a ledger sheet for each of the accounts that a company manages. Therefore, if there are 100 individual accounts in the system, each one will be known as a G / L account, while the total of the 100 accounts will be the general ledger. This means that the number of accounts there will be the equivalent of the number of accounts of the general ledger.
There are several ways to record the information that must be accumulated by each G / L account. The T account is a very fast way to report when working to solve a problem. This form is not used to keep conventional accounting records. Most companies use a form that has sections for all essential information, in a layout very similar to that of the T account.
Among the various forms of recording in the major, the most common is the one used in all the problems in this book. It has a column for charges, another for credits and an additional one for the balance.
4. Preparation of the trial balance before adjustments
After all the operations of the accounting period have been increased, the balance of each account is determined. When the balances of the G / L accounts are already known, a trial balance can be prepared.
Check balance concept
A trial balance is a list of the balance of each of the general ledger accounts, the purpose of which is to perform a general ledger check to determine if the debit and credit balances are equal.
The following steps are required to prepare the trial balance:
- Prepare the appropriate heading (name of the company, name of the financial statements, date). List the names of the G / L accounts in the appropriate order (assets, liabilities, capital, income and expenses) Record in the columns of the The debit or credit balances of each one of the general ledger accounts must and should be in the trial balance. It includes both the debit and credit columns. Both must be the same.
With this step of preparing the trial scales, we can see that we could already prepare a financial statement, any of the basic financial statements mentioned above, but as it really happens in practice, there are always movements or operations that are not considered in the accounting registration process. Therefore, it is necessary to make the necessary adjustments so that the information, whether accounting, financial and fiscal, yields the indicated figures for correct decision-making, which is why the adjustment entries and the movements that are detailed below the author: Gerardo Guajardo Cantú.
5. Registration of adjustment entries
Everything that happens in the business must be recorded in the accounting system. Thus the newspaper and the largest will contain a complete history of all the commercial operations of the period. If an operation or transaction has not been recorded, the account balances will not show the correct figure at the end of the accounting period. Adjustment seat concept.
Adjustment entries are those made at the end of each accounting period, be it monthly, quarterly or annually, which are intended to update the income and expense accounts so that the income of the period is adequately met with all the expenses that were generated in it.
Each adjustment entry affects an account of the statement of financial position or balance sheet and one of the statement of income. Consequently if the entry does not affect an income or expense account, it is not an adjustment entry. Then we would understand that it would be a reclassification entry, because it did not affect the financial statement.
6. Classification of adjustment seats
The above adjustments must be recorded in the general newspaper along with other regular transactions, so that the business has a complete history or record of the transactions carried out in the period. In turn, these adjustment entries must be classified within the general ledger since there is a major account for each one of the accounting system.
7. Preparation of the adjusted trial balance
After journaling the adjusting entries and passing them to the ledger, an adjusted trial balance should be prepared to verify the accuracy of the balance of the ledger accounts, before preparing and updating the period-end financial statements. This procedure is carried out in the same way as that of the trial balance only with the new balances of the major.
8. Preparation of the financial statements
Once the adjusted trial balance is completed, with the information contained therein, the basic financial statements are prepared, which are listed below:
- Income statement. Statement of financial position (balance sheet). Statements of changes in stockholders' equity. Statements of changes in financial position.
9. Completion of the accounting period closing
The next step in the accounting cycle is to close the income, expense and dividend accounts. Because such accounts are closed, they are called temporary accounts. For their part, the asset, liability and capital accounts do not close, which is why they are known as permanent accounts.
Closing the accounts only means that all the transitory accounts, that is, the non-cumulative ones, must be left with a balance of zero, the closing of these accounts are necessary for the expenses. Expenses and dividends accrue only for one period and such accounts may start from scratch in the following accounting period. When closing the income and expense accounts, the profit and loss figure is determined for accounting purposes and is transferred to the retained earnings account of the statement of financial position. Closing the Dividends account also affects the retained earnings account of the statement of financial position.
10. Analysis of financial information
The financial statements reveal the importance of the information they contain for shareholders, creditors and administrators, and how it is important for the good performance of the company. That is why financial analysis is a key point at the end of the accounting cycle. This analysis is based on ratios or relative values. The ratio analysis comprises two aspects: calculation and interpretation with the aim of trying to find out the performance of the company.
The final result of the accounting cycle are the financial statements, which are prepared by the public accountant, these documents are very important since they show the operations, financing, investment and profits that are generated during the year or a certain time.
The objective of the financial statements according to Álvaro Javier Romero López is: to communicate useful information to the general user in the decision-making process, so they should not omit basic information or include it excessively. The financial statements must be prepared in such a way that they include all the transactions carried out, internal transformations and the identifiable and quantifiable economic events, duly recognized in accordance with the NIF.
I agree with both authors with the opinion that in order to carry out a financial statement with accurate and timely information, the analysis, recording of operations and transformations that an entity undergoes to obtain financial information for decision-making must be applied correctly, that is, the accounting cycle must be put into practice to maintain healthy information.
conclusion
Knowing the accounting cycle is of vital importance for the correct analysis and recording of financial, accounting and tax information, because users of financial information depend on the final result for correct decision-making.
Not knowing the complete process would complicate things for us to elaborate information in a truthful and timely manner since it would be very difficult to reconstruct the operations if we omitted any step.
It is important to mention that the registration of adjustment entries and the preparation of the adjusted trial balance are steps that necessarily intervene in the operation of an entity to obtain financial information.
The information that the author manages seems very complete to me, such as maintaining a tight balance and then proceeding to the closing of accounts and finalizing the financial statements, and remembering that the financial statement is the document that provides information for decision-making for users of financial information either within the entity or external to it.
Bibliography
- Financial Accounting. Author: Gerardo Guajardo Cantú. Publisher: McGraw-Hill. Third edition Accounting principles. Author: Álvaro Javier Romero López. Publisher: McGraw-Hill. Third edition.
