Chapter 4

In chapter four of ‘Fundamental Accounting Principles’, John Wild (2012) discusses the topic on completing the accounting cycle. This is often done by accounting worksheets where excel spreadsheet is used in the closing process. The accounting cycle involves all the stages that are involved in the accounting process from the analyzing of the transactions made to the recording of financial statements. A worksheet is used where closing entries are drafted during the closing process which is done at the end of a company’s accounting period or fiscal year. During this time, the balances left from revenue, expenses, loss and gains during the end of the account period are transferred to the capital account.

According to Wild (2012), completing the accounting cycle also involves recording a company’s current assets, liabilities and ratio. A company’s current assets are the amount of money or assets that will be collected, sold or used up during its operating cycle or one year. Its current liabilities are things that the company is expected to settle or pay in the same duration of time as that for its current assets. The company therefore uses the current ratio to evaluate whether it will be able to pay the obligations that are short term in nature. This is achieved by dividing the company’s current assets against its current liabilities.

Completing the accounting also involves the formulation of permanent accounts which refer to activities that are to be engaged in by the company in future. A list of post closing trial balance is drafted to show the balances that remain after all closing entries from the list of the permanent accounts have been recorded in the journals. These records make it possible for accountants to draft working process and complete the accounting period (Wild, 2012).

 

References

Wild J, (2012) “Fundamental accounting principles” McGraw Hill