What is the accounting cycle?

The accounting cycle has five phases, namely: fundraising, recognition, accumulation process, summarization and disclosure .

Capture – collection of data on acts and facts that affect the entity’s assets, as stated by Szuster et al (2008, p.33): “The capture involves the analysis of documents (laws, contracts, invoices, receipts, reports, processes etc.), as well as macroeconomic events that affect the entity ”.

Recognition – it is the moment of questioning in relation to the data of the acts and facts, for example, the first questioning to be carried out, consists of whether the captured data should be recognized.

Accumulation process – after data recognition, they must be organized in a database. To facilitate quick access to information, companies have adopted computerized accounting systems.

Summarization – is the act of transforming all data into accounting information useful to its users, such as the creation of financial statements and reports.

Disclosure – consists of the disclosure of accounting information to its users, either through widely circulated newspapers, through the entity’s website or any other means.

As a result, the entity prepares updated financial statements and reports for each fiscal year, thus, for each social period, entrepreneurs know how the company’s equity is found.

Stages of the accounting cycle

The life of a business is divided into accounting cycles or years and these, in turn, are divided into three stages: accounting opening, movement and closing .

– Opening: At the beginning of the activity, the company opens its accounting year and begins to make economic transactions that are collected in its accounting books, both in the obligatory and in the auxiliary ones.

– Movement: Record of transactions.

– Closing: At the end of an accounting period, the accounts are closed to determine the economic result for the year.

Importance of the accounting cycle

The importance of the accounting cycle lies in being able to see if the financial and equity data are correct, thus verifying the good health of the company.

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