Accounting Theory

Accounting Theory

Accounting Cycle

If we look at the accounting cycle of manufacturing company and Retail Company we will find a little difference in their accounting cycle. This difference in the accounting cycle is due one main reason. In a manufacturing company we have to calculate the cost of goods manufacture so that we can determine our gross profit and net profit to be shown in the Income statement. Here it is important to mention that cost of goods manufacture is not a part of Retail Company because a retail company just buy the finished goods and sell it into the market. While a manufacturing company first manufactures finished goods from raw materials and then sell it into the market (Eisen, 2007).

A normal accounting cycle involves collection and analysis of data, preparing general journal by recording the transactions, and then posting those transactions into general ledger. This data is then use to prepare an unadjusted trial balance. Once the unadjusted trial balance is made the entries are adjusted to prepare adjusted trial balance. This trial balance is use to prepare financial statements and closing the books of account. Once the financial statements are made they are verified and published (If needed).

Different companies have different accounting cycle due to their nature of work. I believe that this difference in the accounting cycle of various companies is justified because different nature of work has different requirements and same accounting cycle may create a barrier for the accountants from giving a true and fair view. As we have discussed that manufacturing company need to identify its manufacturing cost while there is no manufacturing cost for the retail outlets. Another difference which is observed in global environment is the difference between the reporting patterns. Some countries use GAAP (Generally Accepted Accounting Principles) as their ...