Accounting Cycle/Bank Reconciliation - Assignment Example

?Part Accounting Cycle 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 from those raw materials. 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. All firms formulate financial statement in a systematic manner required by law however they go about it in different ways depending on their business nature. Reference Walther. (2012). Principles of Accounting: Volume I (1st ed.). San Diego, CA: Bridgepoint Education, Inc. Response no 1 Andrew Wood I think different businesses go about formulating their financial statements differently. There is not a set accounting cycle that all firms have to follow because accounting cycle might be different for different firms in different cases. I agree with you that retail companies usually rent stores while manufacturing companies own land for manufacturing purposes. 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 she submits it to a bank and then records the money in the accounting book. However, the actual account balance is not changed until the check is cleared and this is why there is a difference in cash balance and cash reported in the accounting records. Another reason for the difference between accounting records and cash balance in the account is that at times some deposits are transit. A person might be notified that some money has been submitted to his bank account and he then records it in his books. The money that is deposited might be in transit and might take some time to reach the bank. This is another reason why there are discrepancies between bank balance and accounting book balance. There are also times when bank is at fault and there is a fault in accounting of a bank. This might also cause the different between cash balance and accounting book balance. These are the reasons of differences between accounting records and cash balance. References Walther. (2012). Principles of Accounting: Volume I (1st ed.). San Diego, CA: Bridgepoint Education, Inc. Response 1 Eric Stephens A good and a concise post! You have raised a good point like interest rates and NSF charges. These are charges that sometimes a person might not record in his or her books and this leads to discrepancies in the cash balance and accounting records. Another reason for the difference might be deposits in transit. Businesses sometimes employ different people and cash change many hands before reaching the bank. This might also lead to differences in accounting record balance and cash balance. I also believe that bank sometimes commit errors. These errors change cash balance from that of accounting balance. Bank reconciliation is therefore important in setting up check and balance as it might help a firm increase transparency. Response 2 Tracy Hall-Summerville Bank reconciliation is important to avoid frauds that can be committed by employees. This is why it is important to do bank reconciliation on a regular basis. Employees can take money from business and might not deposit them in the bank. This is why it is essential to check both bank balance and accounting record balance regularly so as to avoid such frauds. You have talked in detail about how important bank reconciliation is and what is its purpose. I also agree errors, lack of time, and lack of information can cause differences in cash balance and accounting book balance. Deposit in transit and outstanding checks can also cause discrepancies in cash balance and balance of accounting books. A very good post indeed!!! 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