The 8 Important Steps in the Accounting Cycle?

1. The eight-step accounting cycle is important for all types of accountants to know. It breaks down the entire process of bookkeeper responsibilities into eight basic steps. Computer programmed and accounting software frequently automate many of these tasks. However, for small Business Accountants in Chicago working with bookkeeping with minimal technical support, knowing and using the manual steps is essential. An accounting cycle is used to cover one entire reporting period. Regularity in process timing is therefore a key factor that helps maintain overall efficiency. The length of the accounting cycle depends on your reporting requirements. best Virginia Accounting Company try to analyze monthly performance, while some focus more on quarterly or annual results. Nonetheless, most bookkeepers have a day-to-day understanding of their company's finances. Overall, timing is important because each accounting cycle sets specific dates for opening and closing. When an accounting cycle ends, a new cycle begins and the eight-step accounting process

2. begins again.Continue reading To know more information about Book-keeping & Day-to-day accounting in Chicago . Understanding the 8-step accounting cycle The eight-step accounting cycle begins with individual recording of each company transaction and ends with comprehensive reporting of the company's activities for a specified period of the cycle. Many companies use accounting software to automate their accounting cycles. As a result, accountants can set cycle dates and get automated reports. Depending on each company's systems, technological automation may be used to some extent. Although bookkeepers typically include some technical support, bookkeepers must intervene at various points in the accounting cycle. Each individual company will typically need to modify the eight-step accounting cycle in a specific way to suit the company's business model and accounting practices. Changes between accrual accounting and cash accounting are usually a major concern. 8 stages of the accounting cycle The eight stages of the accounting cycle are: Step 1: Identify the transaction The first step in the accounting cycle is recognizing transactions. Businesses make many transactions throughout the accounting cycle. Each must be properly recorded in the company's books. Record keeping is necessary to record all types of transactions. Many companies use ledger-linked POS technology to record sales transactions. There are various costs beyond sales.

3. Step 2: Record the transaction in your journal. The creation of record entries for each transaction is the cycle's second step. POS technology can help bridge steps 1 and 2, but businesses also need to track costs. Choosing between accrual accounting and cash accounting determines when transactions are officially recorded. Accrual accounting requires revenue and expenses to match, so both must be recorded when a sale is made. Cash accounting requires you to record transactions when cash is received or paid. Double-entry ledgers require two entries for each transaction to maintain a fully prepared balance sheet along with an income statement and cash flow statement. Generally Accepted Accounting Principles (GAAP) require public companies to use accrual accounting for their Financial Statement Preparation in New York , except in rare cases.1 In double-entry accounting, the debits and credits of each transaction are equal to each other, which is common in B2B transactions. Single entry accounting is similar to maintaining a checkbook. It provides a balance report, but doesn't require you to enter multiple entries. Step 3: Publish Transactions must be recorded in journal entries and then posted to accounts in the general ledger. The general ledger analyzes all accounting transactions by account. This allows accountants to monitor the financial position and status of each account. One of the most commonly referenced accounts in the general ledger is the cash account, which describes the amount of cash available. Ledgers used to be the standard for recording transactions, but now that almost all accounting is done electronically, ledgers are no longer a major concern because all transactions are recorded automatically.

4. Step 4: Unadjusted Trial Balance The final phase in the accounting cycle is the creation of a trial balance at the close of an accounting period. The trial balance tells the company the unreconciled balance of each account. The unadjusted trial balance is carried forward to Step 5 for review and analysis. This is the first step after the accounting period has ended and all transactions have been identified, recorded, and posted to the ledger. Though not always, this is typically accomplished electronically and automatically. The purpose of this step is to ensure that the total credit balance and the total debit balance are the same. At this stage, you may find many mistakes if the numbers do not match. Step 5: Worksheet Analyzing the worksheet and identifying adjustments is the fifth step in the cycle. To check if the debits and credits are equivalent, a worksheet is made. If there is a discrepancy, reconciliation is required. In addition to identifying errors, when using accrual accounting, you may need to adjust entries to ensure revenues and expenses match. Step 6: Reconcile journal entries In the sixth step, reconciliation is performed by the treasurer. When necessary, adjustments are documented as journal entries. Step 7: Financial Statements The company prepares its financial statements in the seventh step after making all adjusting entries. For most companies, these statements include the income statement, balance sheet, and cash flow statement.

5. Step 8: Close the books Finally, the company closes its books on a specified deadline, ending the accounting cycle in step 8. The closing statement provides a report for analyzing performance for the period. After closing, the accounting cycle starts over from the beginning with a new reporting period. Closing is typically a great occasion to submit paperwork, make plans for the following reporting period, and go over your schedule of expected activities.