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the accounting cycle represents a six-step process that culminates with the creation of financial statements and with the analysis of financial statements and we as external stakeholders of course utilize that information for the purpose of making decisions whether it be to invest if you were an investor or to potentially do business with an organization if you were a supplier or potentially evaluate it for accuracy if you're a government agency like the SEC for example now as internal stakeholders like managers and department heads and those types they of course utilize financial information for the purpose of making decisions about potentially whether to hire staff or whether to change production schedules and those types of things so this accounting cycle although it culminates with the creation of financial statements it really highlights the steps that are needed to get to the place to where we have those financial statements and although we commonly see the financial statements and we enter interact with that portion or that step of the cycle there are a number of different things that have to happen in order to be able to produce those statements so my hope would be with this video is that you would get a general overview of the steps involved in accounting and the key steps involved with accounting that ultimately produce the types of financial statements that we see on a regular basis so to start us off we're going to start with the very first stage here and that is going to be where we analyze what we call Source documents and Source documents include the sources of information so what you're talking about is many organizations produce a number of different Financial transactions whether that would be sales or that would be expenses so Purchasing Office Supplies paying salaries bringing in revenue from a number of different products each of those represents a source document and so what has to happen first in the accounting cycle is bookkeepers commonly have to go through all of the different transactions and they have to classify those particular transactions and so they're taking all of these different sales receipts and purchasing receipts and shipping documents and then they're organizing them in such a way that we're going to be able to produce financial statements so that's the very very first step that has to take place in the accounting cycle now the second step to this process involves recording transactions in journals and these journals can be actually physical journals and you've probably seen these before if you've done any kind of bookkeeping where you're actually physically writing out the transactions that are taking place and you have journals for different categories of transactions uh nowadays with the kind of evolution of technology and the ubiquity of software we utilize a number of different accounting types of software including QuickBooks which is very common to Applause and to others and those are meant to really record the actual transactions that take place this is where they're first entered in into these different journals so this is really one of the first steps Beyond just categorizing them and figure out which kind of entries they are obviously recording them so that they're written down and then of course we can organize them moving forward now the third step to the process involves transferring the journal entries to what we call a ledger and this is commonly done with uh with computer programming and software as well but this this Ledger here I'm going to describe this briefly uh is really kind of a specialized accounting book or program and the whole idea here is they accumulate specific categories um so you have specific categories that are posted and what they do is they accumulate those pieces of information so we can look at The Ledger for specific types of expenses or for revenues and so that managers here the the idea is is that you can find all the information about one type of account in the same place so with journals we're really just notating each of the transactions with a ledger it is very specific to the category that's taking place and so it allows managers to obtain all of that information it's all in one place and then so can we can see the types of transactions that have happened within a certain area now after taking the transfer to The Ledger the next step of the process which is step four is then we're producing what we call a trial balance and a trial balance is really what we call a summary of financial data and it really summarizes what's in the ledgers and the idea here is that it would allow accountants the opportunity to identify uh the issues that are going to take place and then of course correct them before we move on to step five now the fifth step in this process is going to be to produce financial statements or let's say prepare financial statements and this is rather self-explanatory if you're utilizing some kind of software assuming that you're kind of going back in this process so kind of going through step one assuming that we've you know kind of taken a look at all of the source documents and categorize them effectively and assuming that we've recorded them accurately and then of course being transferred into Ledger and and looking just as kind of a a quality assurance mechanism in the trial balance preparing financial statements should be rather simple especially with today's technology it really is a matter of a few Mouse click clicks to produce financial statements assuming of course that they've all been categorized and organized in a in a fairly effective Manner and that takes us to the last step in the process which of course involves analyzing those financial statements and this is primarily done by accountants who again are going to be looking at those statements and trying to identify some kind of Trends and then reporting those potentially to the managers within the organization now if you were to look at these steps to the process you would notice that there really is a division of responsibility here so when you talk about analyzing Source documents and even all the way up to transferring to The Ledger you're really looking at the responsibility generally of bookkeepers to handle that step of the process and when it gets to taking a look at the trial balance preparing the statements and analyzing those then you're looking at the role of accountants in this process and so it really is kind of a shared role between those two individuals to really help produce accurate financial statements