What Are the Steps to the Accounting Cycle?

Accountix works to bring accurate and reliable financial statements to all our clients so that their small business bookkeeping is not just handled, but can provide the information necessary for business growth and increased business efficiency.

When working with a great bookkeeping team (like ours!) the numbers are recorded accurately and at the intervals necessary for your business goals and then the financial statements are created. These financial statements are what we hope business owners can use in order to streamline their back office, keep costs down, make timely business decisions, and generally maintain good small business health.

We’re always keeping an eye on the numbers so that we can provide the best business advice in regular meetings or on an as-needed basis but what it comes down to in the end is the creation of the financial statements that all our clients receive regularly.

How are these financial statements created?

There are many ways to break down an accounting cycle, but here is how we look at it:

The Transactions are Created, Analyzed, and Recorded:

Whether it is Profit and Loss activity(think income and expenses) or Balance Sheet activity (think Assets, Liabilities, and Equity), there is a certain point where the transaction is incurred and the accountants have to record the transaction.

We use a variety of specially-selected cloud-based services in order to accurately record the transactions as they come in (at a frequency selected by the business owner based on their growth and management goals) from various sources. These sources may be bank accounts, credit cards, loans, investor activity, Point of Sales systems, etc.

The raw data of the transactions have to be recorded into the double-entry bookkeeping method so that they are posted as both a credit and a debit. Essentially, they appear on the general ledger in a numbered order that shows the ways in which each transaction impacts the business accounts.

The general ledger is the easiest way to see all the transactions that go through your business in any financial period. These transactions may be ACH expenses, checks, credit card charges, invoices to customers, credit card sales, loan activity, and the list goes on and on. You may need to enter adjusting journal entries for certain types of income or expense recognition as well.

Financials are preliminarily reviewed for accuracy:

Once the transactions have been recorded and posted to the General Ledger the Trial Balance is created by totaling up all the debits and credits within the period. Each individual account is totaled up and calculated based on the raw, unanalyzed data.

This is also the point at which accountants can double check to ensure that all the entries have been made correctly as, according to double-entry accounting guidelines, all debits must equal all credits. Anything off indicates a mistake in the General Ledger process.

Prepare Adjusting Entries for Accrual Accounting if Necessary:

According to Accounting Coach: “Adjusting entries are accounting journal entries that convert a company’s accounting records to the accrual basis of accounting. An adjusting journal entry is typically made just prior to issuing a company’s financial statements.”

These entries are primarily necessary to do accrual type accounting so that income and expenses are timed properly during a certain accounting period.

Some of these types of transactions may relate to inventory, income recognition, expense recognition, depreciation of assets, and many other areas.

Final Review for Accuracy and Best Practices:

At Accountix and any large corporation, part of the accounting cycle includes a review of the accounting by a seasoned professional. Here at Accountix, we have seasoned accountants who perform that review function to ensure accuracy and to give a second pair of eyes on every client’s financials. Some of those professionals at Accountix hold CPA licenses or have years of experience in accounting.

Many problems we see with client’s coming to Accountix is that the prior bookkeeper or accountant did not have this oversight and accountability so small issues slipped through the cracks. A multitude of small issues adds up and can become a big problem for your business!

Prepare the Financial Statements for Management:

After all that work, here is where the magic happens! The financial statements are created using the accurate numbers that your accountants have diligently prepared and are shared with Management.

Management can ask for further analysis and use the numbers to make quality business decisions.

How to use Financial Statements for Growth

The financial statements should tell you a story about the way that your business is functioning. This should help to prepare your business to grow or to otherwise perform well.

If you need help analyze financial statements Accountix might be a great solution for you! We are always happy to chat about the best solutions for your business.