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Accounting Cycle/Bank Reconciliation - Assignment Example

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Accounting Cycle/Bank Reconciliation

A retail company purchases items from wholesalers and manufacturers, and sells those items to customers. The main difference between the accounting cycles will come in inventory valuation and recording. Inventory management of retail companies will be more complex than manufacturing companies because retail companies rely on their inventory heavily. Any difference in inventory valuation and recording will have significant affect on the income statement of a retail company. Revenues are also recognized at different times in retail and manufacturing companies. This is why it is safe to conclude that accounting cycles are different for a manufacturing and a retail company. Another difference in the accounting cycles of two types of companies might come in recording depreciation of equipment. Retail companies usually do not have a high depreciation rate but manufacturing companies have to record depreciation of all their manufacturing equipment which has a potent effect on the overall financial statements. The steps of the accounting cycle are not usually same for all companies because different companies operate and do business in a different manner. Transactions, depreciation, inventory valuation, etc will all be different for different firms and this is why steps of accounting cycle will not be same for all companies....
This is one of the many differences in accounting cycle that exist between the two types of businesses. I don’t agree that most companies will have a similar accounting cycle. Accounting cycle of firms, I believe will be different according to the nature of their business. It is important to understand that there is no strict method set in stone for compilation of financial statements. Firms can take different approaches in formulating their financial statements. Response no 2 Eric Stephens A very good post indeed!!! You have explained the accounting cycle in detail but I think accounting cycle will be different for different businesses. A manufacturing company has different prioritize and has to worry about different things than a retail company. This is why these two types of companies cannot go about following similar steps of accounting cycle. There accounting cycle will be different because they are involved in different businesses. One example would be of revenue recognition. Another would be of inventory valuation. This is why accounting cycles can be different for different businesses. All firms have to produce accurate financial statements but they do not need to worry about following the same steps as this is not important. Part 2 Bank Reconciliation The purpose of a back reconciliation is to make sure that the balance of the bank per books matches with the actual balance of the bank account that is usable. Sometimes the account balance according to the accounting books is different from the actually balance and this is mainly because of outstanding checks, errors, and deposits that are in transit. Cash reported in the accounting records is different from cash balance is sometimes because of the outstanding checks. When a person gets a check, he or ...Show more
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Summary

A manufacturing company and a retail company would have different accounting cycles because they are involved in different businesses.A manufacturing company is involved in purchasing raw materials and then producing finished goods…
Accounting Cycle/Bank Reconciliation
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