QuickBooks has become standard in the accounting and business fields, assisting in managerial decision-making and streamlining bookkeeping and accounting processes. The company’s accounting software tools benefit professionals by automating a broad range of accounting and other business tasks. The accountant must review the documents to make sure they’re complete.Įxhibit 14.6 QuickBooks is a well-known software developer that provides business-management solutions to businesses of different sizes. All transactions that have a financial impact on the firm-sales, payments to employees and suppliers, interest and tax payments, purchases of inventory, and the like-must be documented. The first step in the cycle is to analyze the data collected from many sources. Exhibit 14.5 shows the six steps in the accounting cycle. The accounting cycle refers to the process of generating financial statements, beginning with a business transaction and ending with the preparation of the report. Making two entries keeps the equation in balance. The bank loan is also recorded as a liability of $10,000 because it’s a debt you must repay. Now you have $20,000 in assets-your $10,000 in cash and the $10,000 loan proceeds from the bank. The relationship among these three elements is expressed in the accounting equation:Īssets = Liabilities + Owners' equity $10,000 = $0 + $10,000 Initial equation $10,000 = $10,000 + $0 Borrowing transaction $20,000 = $10,000 + $10,000 Equation after borrowing Assets = Liabilities + Owners' equity $10,000 = $0 + $10,000 Initial equation $10,000 = $10,000 + $0 Borrowing transaction $20,000 = $10,000 + $10,000 Equation after borrowing Another term for owners’ equity is net worth. Owners’ equity is the total amount of investment in the firm minus any liabilities. Liabilities-also called debts-are what a firm owes to its creditors. They may be tangible, such as cash, equipment, and buildings, or intangible, such as a patent or trademarked name. Assets are things of value owned by a firm. He defined the three main accounting elements as assets, liabilities, and owners’ equity. The accounting procedures used today are based on those developed in the late 15th century by an Italian monk, Brother Luca Pacioli. Accountants also develop and manage financial systems and help plan the firm’s financial strategy. Accountants take bookkeepers’ transactions, classify and summarize the financial information, and then prepare and analyze financial reports. Bookkeeping, the system used to record a firm’s financial transactions, is a routine, clerical process. People sometimes confuse accounting with bookkeeping. As mentioned earlier, the three major financial statements are the balance sheet, income statement, and statement of cash flows. They report their findings in financial statements that summarize a company’s business transactions over a specified time period. Using generally accepted accounting principles, accountants record and report financial data in similar ways for all firms. What are the six steps in the accounting cycle?.
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