What is the Accounting Cycle, and When Should it Concern Me?
If you’re reading this, it’s probably because you’re not an accountant. We don’t mean that in a negative way. On the contrary, we’re here to help. You’re most likely a small business owner or manager looking for resources to help with your bookkeeping tasks. The accounting cycle is an important part of those tasks. In fact, it encompasses all of them.
The Circle of (Financial) Life
As its name implies, the accounting cycle is a repeating process. It has eight essential steps:
1: Transactions — Gather, review, and analyze all sale receipts, invoices, bills, deposits, and any other exchanges that would affect any of the company’s accounts.
2: Journal Entries — List all these transactions in the appropriate book of first entry. Companies may have more than one such book depending on their operations. In any case, make sure to list them in chronological order to avoid confusion and errors.
3: Posting — In the general ledger, next add the sum of each type of transaction to the accounts they impact.
4: Trial Balance — The time you do this calculation may vary depending on your company’s accounting schedule. You base the trial balance solely on general ledger entries.
5: Worksheet — If there are any errors, they’ll show up in step 4, in the form of accounts not being in balance. Next is where the reconciliation process begins. You’ll make corrections to the ledger known as adjustments at this point. This is also where you can take into account asset depreciation and both recurring and one-time payments, like for different types of insurance coverage.
6: Journal Entry Adjusting — following the adjustments worksheet, the next step is to take another look at the general ledger. Apply the corrections and other adjustments of the trial balance and worksheet process once it reflects that the accounts will indeed balance.
7: Generate Financial Statements — Everything is balanced? This step always involves creating a balance sheet and an income statement. Next, you can use the information from the cycle to create reports that show where the money came from, where it went, and where it is. Take a look ahead as well, based on past performance and future expectations.
8: Close the Books — The process is complete, and now begins again with zeroed out balances.
Since the advent of consumer accounting software, most of this process is now automated for most businesses. Everything in between gathering the transaction records and generating reports happens almost instantaneously as soon as someone keys in the the numbers.
Where you come in, and where we come in, is in the fact that you still have to compile everything, and you still need to generate and interpret reports.
SyncLedgers helps with exactly these concerns. You almost certainly have better things to do than put all your receipts in chronological order. With us, you can just scan them in whatever order you have them on your desk. We’ll put them in order, we’ll input the data, we’ll create the reports, and we’ll help you understand what they say about your cash flow. Contact us today to get a handle on your accounting cycle!