acct closing process

Decent Essays
According to our textbook the closing process serves a dual purpose 1. The temporary accounts (revenues, expenses, gains and losses) are reduced to zero balances, ready to measure activity in the upcoming accounting period, and 2. These temporary accounts are closed (transferred) to retained earnings to reflect changes that have occurred during that accounting period. (Spiceland p. 79). There are three times during an accounting period when a company should perform a closing process, daily, monthly and yearly. This memo will discuss the month- end closing process, the year-end closing process and the accounting process cycle as a whole. “The month-end closing process is an accounting procedure performed at the end of the month to close…show more content…
(Spiceland 58). After is step is complete than it’s on to steps six through ten which are covered in the month-end and year-end closing procedures. The closing process impacts the company’s financial statements because preparing the financial statements is a part of the accounting closing process. The numbers used to prepare the financial statements are able to be easily accessible and determined because of following the steps and procedure of the accounting process cycle. This information is already analyze, calculated and posted before one can focus on preparing financial statements. Without going through the steps of the account process cycle a firms financial statements may not be accurate, following trail on cash flow will be extremely harder. There are basic assumptions and principles that are involved in the month-end and year – end closing process. The GAAP requires a business to use the accrual basis of accounting instead of cash basis accounting. The accrual basis accounting “adheres to the revenue recognition, matching and cost principles”. ( the second principle is revenue recognition principle. In which revenue is recognized when a product is delivered or the service is finished. Lastly the matching principle, in which the cost associated with doing business are recorded in the same period as the revenue the cost help to generate. In order to comply the standards required by the GAAP for
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