The last aspect of the accounting cycle is the closing of the books for the period. The cash flow statement shows how much cash the business provided or used for operations.Ĭombined, all the core financial statements provide management with a clear picture of the business ‘score board.’ Closing the Books for the Period The income statement gives a picture of the activity for the period. The balance sheet gives a picture as of a point in time of the business’s equity. The financial statements are the culmination of activity for the period. The crucial aspect in AJEs is to help present a true financial picture of a company as of a point in time. Depreciation expense would never hit the disbursement cycle. Depreciation expense is a non-cash entry. These entries usually entail non-cash entries or accrual entries.Īn example would be recording the monthly depreciation on equipment. These entries usually fall outside of the standard receipts and disbursement cycles yet are necessary for accurate financial statements. This cycle also includes internal controls necessary to prevent unauthorized disbursement of cash.Īdjusting journal entries (AJE) are common for any size of business. The expenses can be recorded either by immediate payment or products and services purchased on credit. This sub-cycle primarily focuses on the recording of expenses. This cycle also includes the respective internal controls necessary to monitor revenue. The revenue can be recorded by either cash or through credit sales. This sub-cycle primarily focuses on the recording of revenue. The recording will come from one of the two sub-cycles: cash receipts cycle or cash disbursement cycle. The initial recording of transactions is the start of the cycle. Every month, quarter, or year will have the same transaction processed similarly. Per Merriam Webster–cycle is “ a series of events that are regularly repeated in the same order.” This definition fits the accounting process perfectly. The first aspect to consider when looking at full cycle accounting is the key word ‘cycle’.
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