What Happens If You Miss A Step In The Accounting Cycle

There are 10 Steps in the Accounting Cycle. Missing of any of the step would not give accurate, true & fair view information of Financial Statements To the Users of Financial Statements.

These 10 steps are shown below:

1. Analyzing the Monetary Transactions And Recorded In Source Documents i.e., Voucher, Invoice

2. Journalizing the Business Transactions (Preparing General Journal, Special Journals)

3. Posting the Accounts To Ledger (Preparing General Ledger And Subsidiary Ledgers)

4. Preparing Unadjusted Trial balance

5. Recording Adjusting Entries related to Deferrals And Accruals according to Accrual Basis of Accounting

6. Preparing Adjusted Trial balance where the balances of Temporary Accounts and Permanent Accounts are updated

7. Preparing Financial Statements (Income Statement or Statement of Comprehensive Income, Balance Sheet or Statement of Financial Position, Statement of Cash Flows, Statement of Retained Earnings) Notes to the Accounts

8. Recording Closing Entries to close Temporary Accounts (Revenues, Expenses, Gains & Losses)

9. Preparing Post-Closing Trial balance to finalized the balances of Permanent Accounts (Assets, Liabilities and Owner’s Equity or Equity)

10. Reversing Entries related to Adjusted Entries

If you miss any step, then the financial statements can not give true & fair view information to the Users Of Financial Statements as one step follows the other steps or one step is the basis of the other steps.

For Example, if the Adjusting Entries are not recorded, then accounts’s balances of Accruals And Deferrals, Temporary Accounts And Permanent Accounts Remain the same which is not true. Let Say, adjusting entry for Accrued Salaries of Rs. 300000 is not recorded for the accounting period, then Salaries of Rs. 5000,000,000 can not give accurate, true and fair view of financial information as it missed adjusted figure of Rs. 30,0000 which is still unpaid for the month. So, the correct figure should be Rs. 5000,300,000.