accounting cycle depicts the stages involved in preparing the financial statement. The accounting cycle for a merchandising business consists of ten stages: 1. Collect and verify source documents. 2. Analyze each business transaction. 3. Journalize each transaction. 4. Post transactions to a general and subsidiary ledger. 5. Prepare a trial balance. 6. Complete a worksheet. 7. Prepare financial statements - Income Statement, Statement of Retained Earnings, and Balance Sheet. Note: Publicly held corporations also prepare a Statement of Cash Flow. 8. Journalize and post adjusting entries. 9. Journalize and post closing entries. 10. Prepare post-closing trial balance.
The accounting cycle, its basic principles and steps, are common across the different types of business - sole proprietorship, partnership, or corporation. Key Terms The key terms used in the section are listed below:
Closing entries : The entries that need to be adjusted after preparing an Income Statement are called closing entries. Temporary account : The accounts that have an opening and closing balance as zero are called temporary accounts (Example: Revenue and Expense Accounts). Permanent account : The accounts that carry forward the balances to the next account period are called permanent accounts (Example: Asset, Liability, and Owners Equity Accounts).
Accounting for Publicly Held Corporations Accounting for Publicly Held Corporations: Introduction In the United States, most business organizations operate as sole proprietorships or partnership businesses. These types of businesses work under limitations of limited capital, managerial capability, and growth potential. Corporations overcome these limitations and conduct business activities over a larger scale. Some examples of corporations are Coca-cola, Microsoft, and Wal- Mart. Corporations For legal and tax purposes, a corporation is a separate entity from its owners. A corporation is an entity that can: Purchase assets Merchandise in its name Enter into contracts Sue anyone Be sued by anyone. The following types of corporations exist in the United States. Closely Held Corporations Publicly Held Corporations Features of a Corporation The features of a corporation are listed below: Separate legal entity Legal permission to operate
Stock holders Professional management Advantages and Disadvantages of a Corporation The advantages and disadvantages of corporation are listed below: Capital Stock Capital stock is a type of security that signifies ownership in a corporation. It represents a claim on part of the corporation's assets and earnings. The maximum capital stock a corporation can issue is called authorized capital. A corporation should determine the amount of maximum capital required to run the business while considering the future requirement for capital. Initially the corporation should raise the capital required to start and run the business. At a later stage, it can issue shares to generate more capital.
A corporation should determine the value of each unit of share and disclose this to the concerned state law authority. The value of each unit of share is called par value of share, and is printed on
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