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What are the steps in completing the accounting cycle? How do the different steps affect the financial statements? What is the effect on the financial statements of missing a step when completing the accounting cycle?

Accounting cycle

Identify each transaction and the each even that generated the source. Analyze each transaction by determining the amount, which accounts were affected, and was it a credit or debit. Journal entries are the transactions that are recorded in a journal as either a credit or as a debit. Posting to a ledger is simply transferring the journal entries to a T-account in the ledger.

Trial balance is the calculated information that is used to verify that each sum of the debits and credits are equivalent. Adjusting entries are done for accrued and deferred sources. Therefore, the entries placed into the journal and then the T-accounts, and then the ledger. Adjusted trial balance is the new T balance that has been calculated after the adjustments to the entries. Financial statements are the financial papers that are prepared with all the collected data.  Closing entries is the transferring of the balances of the temporary accounts, revenue and expenses, and transferring them over to owner’s equity. The final step is too re calculated the final trial balance after all closing entries are made.

Each step rolls over into the next. When changes are made they must be documented in the appropriate account or the trail balance will not balance and the financial statements will be false.

Step by Step

There are 9 steps in the accounting cycle which include: (1) Analyze business transactions (2) journalize the transactions (3) Post to ledger (4) Prepare a trial balance (5) Journalize and post adjusting entries: deferrals/accruals (6) Prepare an adjusted trial balance (7) Prepare financial statements: income statement, retained earnings statement, balance sheet (8) Journalize and post closing entries (9) Prepare a post-closing trial balance. Steps 1-3 may occur daily during the accounting period, companies perform steps 4-7 on a periodic basis, such as monthly, quarterly, or annually, steps 8 and 9 closing entries and a post-closing trial balance, usually take place only at the end of a company's annual accounting period. I think it would all depend on which step you miss. If you fail to make year end adjusting entries, your inventory account will probably be over-stated if supplies are expensed directly, accumulated depreciation will be under-stated and so on.

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