Accounting relies on the implementation of effective workflows

softwarebuck April 25, 2021 0 Comments

What is the accounting cycle?

SourceThe accounting cycle is one of the central workflows of accounting. It followsfrom when a transaction is first documented to when a financial statement issubmitted. The cycle starts fresh every accounting period and is the backboneof solid accounting structure.Accounting Explained describes the cycle like so:> Accounting cycle is a step-by-step process of recording, classification and> summarization of economic transactions of a business. It generates useful> financial information in the form of financial statements including income> statement, balance sheet, cash flow statement and statement of changes in> equity.>> 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.This cycle is then broken down into a series of different steps.There is some disagreement as to whether the cycle should be considered as 8steps or 9 or even 10. The number 10 is optional.The cycle goes as follows: 1. Analyze and record transactions via journal entries 2. Post journal entries to ledger accounts 3. Prepare unadjusted trial balance 4. Prepare adjusting entries at the end of the period 5. Prepare adjusted trial balance 6. Prepare financial statements 7. Close temporary accounts via closing entries 8. Prepare post-closing trial balance

Accounting relies on the implementation of effective workflows.

Victoria Cameron and Laura Redmond, in their article Workflow in yourAccounting Practice, reiterate the importance of workflow management withinthe field:> Whether you are performing work yourself or delegating to staff, managing> workflow for your practice is critical.Critical. But where are these workflows? What work comes under this category?Well, pretty much all of it.Cameron and Redmond lay out four areas where workflows need to be implemented: * Identify uses of technology to improve external and internal communications * Define how to organize staff task management systems and task resources for supporting the task completion * Analyze and allocate practice resources * Recognize the need to be deliberate about integrating systemsThese are distinct areas but there is still considerable depth in each. Manyof the processes in these systems might not be accounting-specific.Processes which fall under the scope of “external and internal communications”could be any of the following:So, though we’re going to focus on accounting-specific workflows andprocesses, it is important to recognize that your business does so much morethan just accounting. Leveraging workflows for these other tasks is not justrecommended, but industry best practice.For example, in the above image you can see how you may run multipleonboarding checklists for new members of the accounting team.Each of these checklists will provide a step by step walk-through of thedifferent tasks required to complete the onboarding process.You could even create an automation with Zapier to run this checklistautomatically from your human resources software, if you use one, as shown inthe zap embed above.Hiring and onboarding new staff isn’t accounting-specific; all companies dothis. But it is an important part of running a successful organization, and ause case which you should have documented procedures for.

How to construct processes for your accounting activities

WSG Systems President William Cornfield’s article Making workflows work, inthe Journal of Accountancy, lays out a clear 5 step system for bringingworkflows effectively into your accounting business.

Accounting cycle meaning

Accounting cycle refers to the complete process of accounting procedurefollowed in recording, classifying and summarizing the business transactions.Accounting cycle starts right from the identification of business transactionsand ends with the preparation of financial statements and closing of books.

Steps in accounting cycle

Whether you are a business owner or aspiring accountant, it is important toknow and understand the process involved in the accounting cycle. Accountingcycle consists of 8 steps listed below:

Step-1 of accounting cycle is identification of business transactions

The first step of the accounting cycle beings with the identification offinancial transaction that have occurred in the business. In this accountingcycle, the accountant or the bookkeeper collects the data of all thetransactions such as purchases, sales, payments, receipts etc. and keeps thedata ready to complete next step of the accounting cycle. Here, the accountantor bookkeeper analyze the nature of transactions, accounts impacted etc.

Step-2 of the accounting cycle is the recording of transactions in the

books of accountsThe next step of the accounting cycle is the most crucial and important. Inthis accounting cycle, the bookkeeper or accountant records the financialtransaction in the book of accounts. This step of the accounting cycle is alsoknown as a journal entry and the book in which it is recorded is a journalbook.Here, all the transactions are recorded in chronological order along with theledger accounts involved, amounts in Dr/Cr and narration (a brief note on thetransactions)

Step-4 of accounting cycle is to prepare un-adjusted trial balance

In this step, you must list all ledger accounts with closing balance postedfrom individual ledger accounts statement (discussed above). The format oftrial balance consists of the Debit column and Credit column in which theclosing balance of each ledger accounts will be posted. After posting theclosing balance of all the ledger accounts, the debit balance should matchwith the credit balance.This is the primary source for preparing the final accounts and all otherfinancial statements.

Step-6 of accounting cycle is to prepare the adjusted trial balance

Adjusted trial balance is a statement listing all the closing balance of theledger accounts after all the adjustment entries related to accounting periodis posted into the books of accounts.

Step-7 of accounting cycle is to prepare financial statements

This is the most important step of the accounting cycle. Once you havefollowed all the above steps of the accounting cycle, it’s time for you tostart preparing financial statements. Profit & Loss account and Balance sheetare the two key financial statements. * Profit and loss account: Profit and loss accounts is a financial statement prepared to know the profitability of the business. This is also known as Income Statement. * Balance sheet: Balance sheet is one of topmost financial statement prepared by the businesses. The financial details of the balance sheet help you and the external stakeholders to evaluate the financial performance of the business on a given date. click here to know Balance Sheet format, steps to prepare balance sheet etc.

Step-8 of accounting cycle is closing the books of accounts

Closing books of accounts refer to freezing books from recording the businesstransaction. This is done after the closure of the accounting period andposting all the adjustment entries. At this stage of the accounting cycle, allthe financial statements are prepared and new books for the subsequentfinancial year will be started.

Modern-day accounting cycle

With the growth of trade and commerce and the diversity of the businessoperations, businesses are using accounting software to get rid of the complexprocedure involved in the accounting cycle. Accounting software automates theentire accounting cycle by just recording the transactions. For businessowners, it saves time and efforts involved in the manual accounting cycle. Notjust automating the accounting cycle but the capabilities to auto-generatevarious financial statements such as cash flow, accounts receivables reports,projections etc. makes accounting software invaluable to the business.Accounting transaction definition

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