Accounting Cycle — 8 Steps of Accounting Process Explained

 The accounting cycle is a basic, eight-step process which helps complete a company’s bookkeeping tasks. It provides a proper guide for the recording, analysis, and final reporting of a business’s financial activities.

The accounting cycle is conducted by accountants in Chennai and used in totality through one full reporting period. Thus, staying organized throughout the process’s timeframe can be an important element that helps maintain overall efficiency. Accounting cycle periods change as per the reporting needs. Most companies try to analyze the performance on a monthly basis, though some may focus on quarterly or annual results.

Regardless, most bookkeepers have an awareness of the company’s financial position on a day-to-day basis. Overall, it determines the amount of time for each accounting cycle and is important because it sets specific dates for opening and closing. Once an accounting cycle completes, there is a beginning of a new cycle that sets off the eight-step accounting process in the best CA firms in Chennai all over again.

The sequence of accounting procedures helps record, classify and summarize accounting information and it is known as the accounting cycle.

The term suggests that the procedures must be continuously repeated and can enable the business to make an up-to-date financial statement all at reasonable intervals. Here are 10 accounting cycles you need to have in mind,

1. Transactions

Transactions: Financial transactions initiate the process. If there were no financial transactions, you would be able to keep track of anything. Transactions may include certain things such as the debt payoff, any purchases or acquisition of assets, sales revenue, or any other expenses incurred.

2. Journal Entries

Journal Entries: When the transactions are set in place, the next step is to record the journal entries in the company’s journal in a chronological order. When you debit one or more accounts and credit one or more accounts, the debits and credits will always balance.

3. Posting to General Ledger (GL)

Posting to the GL: Next the journal entries are posted in the general ledger where a summary of the transactions is made and individual accounts can be seen.

4. Trial Balance

Trial Balance: When at the end of the accounting period which needs to depend on the quarterly, monthly, or yearly, it all depends on the company), a total balance may be calculated for the accounts.

5. Worksheet

Worksheet: When the debits and credits on the trial balance don’t match, the bookkeeper must look for errors and make corrective adjustments that are tracked on a worksheet.

6. Adjusting Entries

Adjusting Entries: At the end of a company’s accounting period, the adjusting entries are posted to accounts for some accruals and deferrals.

7. Financial Statements

Financial Statements: Next the balance sheet, income statement, and cash flow statement are prepared by using the correct balances.

8. Closing

Closing: The revenue and expense accounts are fixed for the next accounting cycle. This is because revenue and expense accounts are known as the income statement accounts, which show performance for a certain period of time. Balance sheet accounts are not completed because they show the company’s financial position at a fixed period of time.