When preparing financial statements, businesses perform a series of meticulous steps designed to convert basic financial data into cohesive, complete and accurate reports. This systematic process is called the accounting cycle, and it helps make financial reporting easier and more straightforward for business owners. After the company makes all adjusting entries, it accouting cycle then generates its financial statements in the seventh step. For most companies, these statements will include an income statement, balance sheet, and cash flow statement. The eight-step accounting cycle starts with recording every company transaction individually and ends with a comprehensive report of the company’s activities for the designated cycle timeframe.
One of the main duties of a bookkeeper is to keep track of the full accounting cycle from start to finish. The cycle repeats itself every fiscal year as long as a company remains in business. The time period principle requires that a business should prepare its financial statements on periodic basis. Therefore accounting cycle is followed once during each accounting period. Accounting Cycle starts from the recording of individual transactions and ends on the preparation of financial statements and closing entries.
Posting to the general ledger
The accounting cycle consists of the steps from recording business transactions to generating financial statements for an accounting period. The operating cycle is a measure of time between purchasing inventory, selling the inventory as a product, and collecting cash from the sales transaction. Now that all the end of the year adjustments are made and the adjusted trial balance matches the subsidiary accounts, financial statements can be prepared. After financial statements are published and released to the public, the company can close its books for the period.
The accountant compares and then enters a correction to the accounts. It is helpful to compare the incorrect entry with the correct entry in order to identify the correct entry. For example, a purchase order for $15,000 was placed with a vendor. This is not a transaction because there is no exchange of money. Estimates are made for non-cash items when you can’t identify the exact value of them.
Step 3. Post transactions to the general ledger
Financial statements such as trading accounts, profit-loss accounts, and balance sheets are prepared following the adjustment of the corresponding fiscal year’s arrears and advances. An example of identifying transactions would start with point-of-sale software. Many of these software options automatically identify a transaction. You can use Deskera to integrate directly with your bank account or multiple bank accounts.