Financial statement preparation: part of the accounting cycle

Hi there. Janice Weber here, continuing the talks about financial accounting concepts at the overview level. So today, we will talk about financial statement preparation, which is really the whole purpose of why accounting is needed, because the financial statements are the public-facing piece of accounting. So others rely heavily on these statements to be correct. And so it's a big responsibility for accountants.

So I would like to introduce myself. I had two careers in accounting, which I have enjoyed so much. The first one was as a CPA in public practice. And then I switched and am now an accounting educator at a public university, and I've just loved working with accounting in both cases and would like for you to spark some interest in the possibility of studying accounting further yourself.

The accounting cycle is an underlying pattern of accounting processes that is underlying every period of accounting that we go through. So I just want to reiterate just briefly the fact that we have these steps that I've put forth, which, caveat, they could be numbered differently and include different things by other authors or speakers, but this is just what I chose to use as the grouping. First would be when something happens in the company, the first step is to analyze the transaction and make a journal entry. Then the second step would be to post those entries over to each account so we can see what the ending balance of each account is. And that would include pulling a trial balance of all the list of accounts that shows what each account's balance would be, making sure it balances to keep the accounting equation in sync. So then the third step, which we talked about in a previous talk would have been the adjusting entries that are needed in order to true up the balances to make the financial statements valid. So then once the adjusting entries were made, we would have pulled another trial balance that's called the adjusted trial balance. So this video today, this talk today would be stepping into Step 4 and then Step 5 of the accounting cycle. Step 4 is the building of the financial statements, whereas Step 5 is closing out or clearing of the accounts in order to prepare them for the next period, which is going to be Step 6 that starts the cycle back at one so that it shifts it into the new period to start all over again.