What Are The Steps To Accounting Cycle In Business?
Introduction
Accounting is an essential aspect of every business, big or small. It helps in tracking financial transactions and making informed decisions based on the data obtained. However, accounting can be a complicated process, especially for those who are new to it. The good news is that there’s a systematic approach involved in accounting called the Accounting Cycle. In this blog post, we’ll take you through the steps involved in the Accounting Cycle and how they affect businesses. If you’re looking to learn more about procurement with an SEO focus, read on!
The steps involved in the accounting cycle
The accounting cycle is a series of steps that businesses follow to record, analyze and report their financial transactions. The accounting cycle typically starts with the identification and recording of business transactions in a journal or ledger. This process involves documenting all financial activities such as sales, purchases, payroll expenses, etc.
Once the transactions have been recorded in the journal or ledger, they are then posted to the general ledger where they can be summarized into specific accounts. The next step involves preparing an unadjusted trial balance which helps ensure that debits equal credits before adjustments are made.
After this step is complete, any necessary adjusting entries are made to correct errors or omissions and prepare accurate financial statements. Adjusting entries may include accruals for unpaid expenses or revenue earned but not yet received.
Following these adjustments, an adjusted trial balance is prepared which shows updated account balances after making corrections from adjusting entries. From here on out it’s just preparing the necessary financial statements like income statement and balance sheet as well reconciling bank statements (if applicable).
Closing entries need to be made at year-end which transfer temporary account balances (revenues and expenses) into retained earnings so that they can start fresh for next year’s accounting cycle.
How the accounting cycle affects businesses
The accounting cycle plays a crucial role in the success of any business. By providing a comprehensive view of financial transactions, businesses can make informed decisions that help them grow and succeed. The first step in the accounting cycle is to analyze all incoming financial transactions.
Once these transactions are analyzed, they are then recorded into various accounts using journal entries. This allows for easy tracking of revenue and expenses throughout the year. From there, it’s time to prepare an unadjusted trial balance which provides a snapshot of account balances at any given moment.
The next step involves adjusting journal entries which can include accruals or deferrals that have not yet been accounted for. Once adjusted entries have been made, it’s time to create an adjusted trial balance which reflects any changes made from initial recording.
After this stage, it’s time to start preparing financial statements including income statements and balance sheets which provide insight into how well your business is performing financially. Finally comes closing entries where temporary accounts such as revenue or expenses are transferred over to permanent accounts like retained earnings.
By following these steps within the accounting cycle businesses gain valuable insights into their finances allowing them to make better decisions about future investments or growth opportunities while ensuring compliance with regulations related procurement among other things
Conclusion
The accounting cycle is a fundamental process that every business should adopt to ensure accurate financial records. The steps involved in the accounting cycle include identifying and analyzing transactions, recording them in journals, posting to ledgers, preparing an unadjusted trial balance, adjusting entries for accrued expenses or revenues and depreciation of assets, preparing an adjusted trial balance and finally creating financial statements.
Procurement plays a vital role in ensuring smooth sailing of the accounting cycle. It involves obtaining goods or services from suppliers at the right price and quality within specified deadlines. This results in improved cash flow management which is essential for managing accounts payable efficiently.
A well-managed procurement function ensures timely delivery of goods and services while minimizing risks associated with purchases such as fraud or errors. Therefore it’s crucial for businesses to focus on optimizing their procurement processes by implementing technology solutions like e-procurement software that streamline purchasing activities while reducing costs.