FOUR CHARACTERISTICS OF THIS CYCLE INFLUENCE THE AUDIT OF THESE ACCOUNTS

1. Relatively few transactions after the account balances, but each transaction is often highly
material.
2. The exclusion or misstatement of a single transaction can be material.
3. A legal relationship exists between the client entity and the holder of the stock, bond, or similar
ownership document.
4. A direct relationship exists between the interest and dividends accounts and debt and equity.

ACCOUNTS IN THE CYCLE

• Notes payable

• Cash in the bank

• Contracts payable

• Mortgages payable

• Bonds payable

• Interest expense

• Accrued interest

• Appropriations of retained earnings

• Treasury stock

• Dividends declared

• Capital stock—common

• Capital stock—preferred

• Paid-in capital in excess of par

• Donated capital

• Retained earnings

• Dividends payable

• Proprietorship—capital account

• Partnership—capital account