When a company, like Walmart, begins to prepare financial statements and reports at the end of an accounting cycle they generally use Generally Accepted Accounting Principles and “the collective process of recording and processing the accounting events” (Definition of ‘Accounting Cycle’, 2012), known as the accounting cycle. There are nine steps involved in the accounting cycle. Walmart would begin the process by collecting and analyzing data from their events and transactions. Next, the company puts those transactions into a general journal. After journalizing their transactions the company posts these entries to the general ledger.
The next step in the accounting cycle is to prepare an unadjusted trial balance. Once the unadjusted trial balance is completed the company makes the appropriate adjustments and then prepares an adjusted trial balance. Adjustment entries are made to ensure the company follows revenue recognition and the matching principle and report appropriate assets, liabilities, and owner’s equity at the statement date; and ensure proper reporting of revenues and expenses for the accounting period.
This is an important step in the accounting process because the data in the unadjusted trial balance may not be up-to-date and complete.
This happens because not all events require daily journalizing and because the company may have some costs that expire with the passage of time and are not yet recorded. Now Walmart is ready to organize the accounts into financial statements and close the books. After this is done the company may decide to prepare a post-closing trial balance to check the accounts. There are many steps and a lot of work involved in preparing financial statements using the accounting cycle, but this methodical set of rules help “to ensure accuracy and conformity of financial statements” (Definition of ‘Accounting Cycle’, 2012).
Because there are no set rules as to which events the company must record, they can choose what to include and exclude from various financial statements. If an item is an element, measurable, relevant, and reliable it should be included in the financial statements. The company should record as many events as possible that affect its financial position. The more information provided in financial statements the more confident readers of the financial statements will be about the financial decisions they make regarding the company.
In its financial report, Walmart provides an unaudited Condensed Consolidated Statements of Income. This financial statement provides financial information measuring the results of operations dating back three and six months prior to the statement date for the current and previous year. The statements of income begins with revenues; which includes the net sales, membership and other income, total revenue, cost of sales, and operating, selling, general, and administrative expenses. Following the revenues account is the operating income account and the interest account.
The interest account includes debt, capital leases, and interest income, giving net interest. Income from operations before income taxes and provisions for income taxes are the next accounts listed, respectively. The income from continuing operations and loss from discontinued operations, net of tax, follow. These accounts are followed by consolidated net income and consolidated net income attributable to noncontrolling interest, which give the amounts in the next account, consolidated net income contributable to Walmart.
Next in Walmart’s statements of income is income from continuing operations attributable to Walmart, basic net income per common share, diluted net income per common share, and the weighted-average number of common shares; respectively. The statements of incomes ends with dividends declared per common share. The next financial statement included in Walmart’s financial report is its unaudited Condensed Consolidated Balance Sheets. This financial statement shows Walmart’s financial condition at the statement date, six months prior, and one year prior.
The balance sheets begin with the asset accounts; listing current assets, property and equipment, property under capital lease, goodwill, and other assets and deferred charges. Next is the liabilities and equity accounts. Current liabilities are listed first; followed by long-term debt, long-term obligations under capital leases, deferred income taxes and other, redeemable noncontrolling interest, and commitments and contingencies; respectively. Under the equity section of the balance sheets is common stock, capital in excess of par value, retained earnings, and accumulated other comprehensive income.
These values give the total Walmart shareholders’ equity amount; noncontrolling interest follows. The last financial statement in Walmart’s financial report is its unaudited Condensed Consolidated Statements of Cash Flows. This financial statement reports cash provided and used by operating, investing, and financing activities during the six month period ending on the statement date for the current and previous year. This financial statement begins with cash flows from operating activities.
Cash flows from investing activities and cash flows from financing activities follow, respectively. Next is the effect of exchange rates on cash and cash equivalents. The net increase in cash and cash equivalent, and cash and cash equivalent at the beginning of the year are totaled to get the cash and cash equivalent at the end of period amount. Walmart’s financial reports do not include a statement of retained earnings but it does include the calculations of returns on investments and assets.
There are certain measures used by Walmart that may be considered non-GAAP financial measures under the rules of the SEC. Walmart includes disclosures regarding this and other issues in the beginning of its financial report.
Investopedia. (2012). Definition of ‘Accounting Cycle’. Retrieved from http://www. investopedia. com/terms/a/accounting-cycle. asp#axzz25KArwfPC Walmart Corporate. (2012). 8-K Current Report Filing. Retrieved from http://stock. walmart. com/financial-reporting/sec-filings
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