Bookkeeping canꦏ be daunting. There are various tasks to juggle,ꦅ and getting it wrong could have serious implications.

Fortunately, established processes exist to help businesses and entrepreneurs accurately record and report financial activities. One of them is the 澳洲幸运5开奖号码历史查询:accounting cycle. This eight-step repeatable guide is a basic checklist of what to do during each accounting period. All phases are covered, from iden🍃tifying and recording transactions to checking for discrepancies, making adjustments, and creating financial statements. We take you through these important steps below.

What Is the Accounting Cycle?

The accounting cycle is an eight-step guide to ensure the accuracy and conformity of 澳洲幸运5开奖号码历史查询:financial statements. It walks companies and their accountants through each of the bookk▨eeping tasks that must be completed every accounting period to tra𒐪ck transactions, starting with their identification and ending with creating financial statements and closing the books.

This guide breaks down the accounting process into easy-to-follow steps that are repeatable every time a new accounting period begins. They are standardized for use across all types of business. The accounting cycle is compatible with technology and can be implemented by companies using accrual or cash ♉accounting and double or single-entry accounting. In the case of the latter, some😼 steps can be ignored.

The length of each cycle depends on how often a company chooses to analyze its performance or is required to lay out its accounts. Some co🔜mpanies have monthly internal accounting periodsᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚ. Others report quarterly or annually.

Once a🐷n accounting period ends, a new one begins, and the process starts over agaiไn.

Step 1: Identifying Transactions

The accounting cycle begins by identifying transactions. All transactions must be accounted for, whether they involve a sale, refund, inventory order, debt pay♎oඣff, asset purchase, or other activity.

The necessary information includes transaction dates and monetary figures paid or received. Sales data is logged automatically for companies using point of sale (POS) technology.

Step 2: Recording Journal Entries

After a transaction is identified, a record of it needs to be created. This is done through a journal entry. The journal functions as a running record of a business's financial transactions. It states the date of each transaction, how much money was involved, and the a🅘ccounts affected.

The timing for recording transactions depends on whether the company uses accrual or cash accounting. With 澳洲幸运5开奖号码历史查询:cash accounting, transactions are recorded when cash changes hands. With 澳洲幸运5开奖号码历史查询:accrual accounting, journal entries are made whe💜n a good or servic𝓀e is provided rather than when it is paid for.

When recording transactions, remember to keep them in chronological order and, if using 澳洲幸运5开奖号码历史查询:double-entry accounting, which most businesses do, mak𒁃e two entries each time. Fꦏor every transaction, there must be a credit and a debit. A credit in one account offsets a debit in another, so all credits must equal the sum of all debits.

Step 3: Posting to the General Ledger

Once a transaction is recorded as a journal entry, it should be posted to an account in the 澳洲幸运5开奖号码历史查询:general ledger, which is an old-fashioned term for a record-keeping system for aꦦ company’s financial data.

In the general ledger, all accounting activities are summarized and sorted into one of the following subcategories: assets, liabilities, 澳洲幸运5开奖号码历史查询:owners’ equity, revenues♊, and expenses. This makes it easier to track finances and identify, for example, how much cash a company has or how much it’s spending ๊or owes.

Step 4: Preparing a Trial Balance

After all transactions are logged in tꦰhe general ledger,💦 the next step is to make sure the entries balance out, meaning total debits equal total credits. This is done by building a trial balance.

A 澳洲幸运5开奖号码历史查询:trial balance is a bookkeeping worksheet that compiles the balances ofꦿ ledgers into debit and credit account columns. With the data laid out this way, it’s easy to see if the numbers match up. If they don’t and there are more debits than credits or vice versa, there’s an error.

ꦺ The trial balance is usually c🅷reated at the end of the accounting period, whether monthly, quarterly, or annually.

Step 5: Analyzing the Worksheet

In this phase,🌳 worksheets are in⛎vestigated for any discrepancies.

If the debts and credits on the trial balance don’t match, the person keeping 🐭the books must get to the bottom of the error and adjust accordingly. That’s not the only analysis required. Even if the trial balance is balanced, there still may be errors, such as missing transactions or those classified incorrectly.

Step 6: Making Adjustments

If any discrepancies are spotted, adjustment entries must be made to remedy them. Companies using accrual accounting need to account for accruals, deferrals, and estimates, such as an 澳洲幸运5开奖号码历史查询:allowance for doubtful accounts.

Accruals occur when payment is made after a good or service is delivered, while deferrals occ🐎ur when the payment is ex🍸ecuted before the good or service is delivered.

With cash accounting, the transaction is recorded when the payment isౠ made. With accrual accounting, the꧃ log date is the date the service is provided, received, or earned.

Of course, not all goods or services are provided in a day. Often, an assignment or service can stretch ove💯r weeks or months. When a transaction starts in one accounting period and ends in another, an adjusting journal entry is required to ensure it is accounted f𓂃or correctly.

Step 7: Generating Financial Statements

Once all the necessary entries and adjustments for the accounting period have been made, it’s time to generate 澳洲幸运5开奖号码历史查询:financial statements.🤡 These formal records of a company’s financial activities must follow a specific template. In most cases, a company’s financials are communicated in the following three s൩tatements:

•  澳洲幸运5开奖号码历史查询:Balance sheet: This is where a company’s assets, liabilities, and shareholder equity are reported. The balance sheet says what a company owns and owes, as well as the amount invested by shareholders at a specific time.
• 澳洲幸运5开奖号码历史查询:Income statement: This is where a company reports its revenue, income, and expenses over a set period. From this, it's possible to determine whether it made a profit or a loss.
• 澳洲幸运5开奖号码历史查询:Cash flow statement: This details how cash entered and left the business during the reporting period.

Step 8: Closing the Books

After the financial statements are completed, it’s time to close the books. This can be a good time to reflect and compare the firm's performance with other periods and peers. Further analysis could reveal areas for improvement and highlight where the company has done well.

The closing of the books also marks the start of the next accounting period. The cycle i﷽s complete, and it’s time to begin the process again, starting with ♑step one.

The Bottom Line

A business’s financial activitღies need to be accurately recorded and reported not only for internal use but also to meet legal and regulatory requirements. The accounting cycle, an eight-step guide on the various bookkeeping phases, helps make that daunting task more manageable.

The accounting cycle is adaptable to different accounting methods, such as accrual or cash accounting, and can be partially automated through software. It starts by identifying transactions and creating a proper record of them in the ledger, then shifts to checking for errors and making necessary adjustments before gen🅰erating financial statements and closing the books.