Complete a two-part assessment in which you will identify accounting conventions and complete five exercises that reflect the steps of a business accounting cycle.
Note: An accounting cycle requires specific steps that need to be executed in a particular sequence. The assessments in this course are likewise sequenced, and should be completed in the order in which they are presented.
Demonstrating your understanding of the financial accounting theories behind various financial accounting practices helps you support your professional work and gain credibility.
Imagine you are the captain of a large sailing vessel, hundreds of miles away from land. You have no maps, charts, or navigation equipment to show you where you have been, where you are, or where you should be going. Further, you have no means of communicating with the outside world to let them know the results of your journey.
If this scenario is a bit daunting, picture a business organization with no means of measuring past, present, or future operating results and no language for communicating its position in an industry.
This scenario helps you understand why an accounting information system is important and known as the lifeblood of any business organization. This complex system collects and processes business information and communicates the results to interested parties. Much like navigation equipment on a ship, accounting information charts show where the business organization has been financially and put the organization on a course toward achieving its stated purpose or vision.
The following resources are required to complete the assessment.
Note: An accounting cycle requires specific steps that need to be executed in sequence. The assessments in this course are presented in sequence and must be completed in the order presented.
There are two parts to this assessment.
Accounting conventions are common guidelines and practices—principles, assumptions, and constraints—followed by accounting professionals when recording business transactions. These accounting conventions are standards used by all business organizations, so it is important to understand what they are and how to apply them.
For Part 1 of the assessment, define each of the following accounting conventions and provide an example of how they are applied in the world of business, and in particular in accounting. Provide your answers in a 3-4-page Word document.
Part 1 of your assessment should meet the following requirements:
Part 2 of this assessment walks you through the basic steps of the accounting cycle to produce financial statements for stakeholders. This assessment has five sections; each section of the assessment is a continuation of the previous part.
For this part of the assessment, complete the following:
Imagine after working with an accounting firm for one year, you are striving for a promotion. To earn a promotion, you must seek recognition from managers within your firm, from colleagues, and from clients. You strategize ways to be a sound resource for financial answers within your firm and for your clients. Demonstrating your understanding of the financial accounting theories behind various financial accounting practices helps you support your professional work and gain credibility. Your boss just assigned you numerous accounts that have a wide range of accounting needs. These new accounts are the final test for the promotional track.
Your client Dorothy Young, the owner of a dress shop, has recently died. Her daughter, Tanya, is the executor of the estate but has never been involved in running the business. The beneficiaries want to sell the business and divide the proceeds. The business broker Tanya hired needs current financial statements to determine the value of the business and put it on the market. You must complete the accounting cycle for the business and produce the necessary financial statements for the beneficiaries and the business broker.
Using the information in the Accounting Cycle Steps Preparation Data Sheet, complete the following five parts in the Assessment 1 Template. Each part builds on the previous part. Where appropriate, show the calculations leading to the final solution.
Adjusting entries are necessary to prepare a company’s financial information according to the matching and revenue recognition principles. Certain account balances must be adjusted at the end of each accounting period for all revenue and expense accounts to be reported with the correct balances.
The adjusted trial balance is prepared to assure us that debits equal credits after the adjusting entries have been posted to the general ledger.
The multiple-step income statement is used to disclose the operating and nonoperating activities of a company separately. This income statement format organizes the operating expenses and nonoperating expenses into separate areas of the income statement and matches costs and expenses with revenues for the period.
The closing process takes the balance of temporary or nominal accounts to zero to prepare the accounts for a new accounting period. At each year end, the income statement accounts and withdrawal or dividend accounts must be closed so that the balances will reflect only activity for the current accounting period, similar to an individual’s paycheck information. At the end of each year, employers prepare a W-2 for each employee and close the payroll accounts for the year. Zero balances begin the next year.
The post-closing trial balance is prepared to show us that debit account balances are equal to credit account balances after all of the closing entries have been posted to the general ledger. Once the post-closing trial balance has been prepared, verified, and balanced, we are ready to start recording transaction for the next year. This is the last step in the accounting cycle.
By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:
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