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What is Accounting Process Cycle?

Introduction

The most organization finds it a necessity to have an accounting cycle process with the aim of processing and organizing information and statements regarding their financial position at the end of each accounting period. This enables the stakeholder to project, whether it is running at a loss or making a profit. The accounting process is an ongoing activity in a company, and it is done repeatedly at the end of each accounting period. The accounting process varies significantly depending on various aspects, such as the size of the organization in terms of operations and the number of accountants.

As the company expands its operations, the account complexity widens. Similarly, the accounting process can also be calculated by the number of accountants. Companies are obligated to process financial information and must have dedicated personnel assigned accounting labour. To meet their objectives, the accountant must strictly follow the prescribed step by step process referred to as the accounting cycle (Kieso,2007,12th ed., Vol. 2). Quality service tax Inc. is a family-run company that began in 1997. At its inception, the company had only two workers and had a partnership of two individuals. The company has since developed and has employed three employees to facilitate their growing operations and demands from its clients. One individual is assigned to fully oversee the accounting cycle adhered to. The recent development at Quality service tax Inc is the introduction of the automated software, which is meant to reduce the burden of bookkeeping.

What is Accounting Process Cycle?

Accounting Cycle Process

The accounting cycle is a systematic process that follows generic steps of identifying and recording business transactions, then summarizing it and finally reporting to the management. The accounting cycle has a chain relationship in the accounting life cycle to the previous point. The following are the Accounting cycle steps employed by Quality service tax Inc (Intermediate Accounting 12th Edition, Kieso, Weygandt, and Warfield).

Identification of the transaction is the initial step that triggers the accounting cycle by identifying the transactions to be recorded. This entails pointing out transactions that have an economic value and can be expressed in monetary terms (Kieso, 2007 vol1). All transactions of sale or purchase must be registered in the book of account.

Journalizing entails capturing transactions in a general journal that indicate information such as liability, asset, capital, and stockholders’. Moreover, it shows the consequence of transactions that are generated from the asset, liability, equity, expense, and income.

Posting accounts is the third practice, which involves transferring transaction records from a journal to the ledger book. The general ledger is organized in such a way that all related transactions are wrapped together and summarized. For example, the account named “PURCHASES’’ will collect all purchases for that period.

A trial balance is a list of all accounts and their balances for a particular accounting period. At the end of an accounting period, the company prepares a trial balance of all accounts in the same order they were posted in the ledger account along with debit and credit balances. The summation on each column, credit, and debits, should be equivalent as conceptualized by the PRINCIPLE OF DOUBLE ENTRY that guarantees no omission and error-free accounts.

Adjusting transaction entries involve the addition of earned revenues and incurred expenses into the accounts. Ordinarily, it is conducted at the end of each accounting period to facilitate the organization in tracking its revenue and expenses. As an example, an entry might be needed at the end of the accounting period to record revenue earned but is yet to be entered on the books. Likewise, an adjustment could be required to record an expense that has been incurred but yet to be recorded.

Adjusting trial balance is another stage which aim is to ensure that no omission and error are cascaded from transaction adjustment entries to the accounting process. In the case of unequal credits and debits sums or if an incorrect account is encountered, the discrepancy is investigated and corrected.

The next stage is modelling financial statements directly from the final and account balances from the adjusted trial balance. This useful in the drawing of useful information such as balance sheet, income statement, cash flow statement, and retained earnings statement.

To avoid translating accounts of one period to another period, all completed accounts in one accounting period must be closed. Once the accounts are closed, all accounts that have balances, such as liability, asset, and capital accounts are carried forward to the next accounting period.

Prepare a post-closure trial balance which facilitates the final testing of both debits and credit sums equality to ensure that everything is in order before moving to the next stage of the accounting life.

Use of QuickBooks Software to Automate Account Cycle Process

Apart from minimizing errors, QuickBooks software can also be used to ease the tedious work in the bookkeeping perform accounting arithmetic very fast. In addition, transactions can be captured, accessed, and updated simultaneously, allowing multiple phases of the accounting cycle to be practically simultaneously conducted. Several stages can be combined into one stage. The generation of the financial report is also instant. In computer-based tools, we need not testing for the equality of both debit and credit columns because validation is done during data. The closing process at the end of the period can also be done automatically by the computer. ( Kieso, 2007,12th ed., Vol. 1).

Conclusion

In spite of the existence of automated accounting software’s, experienced personnel are still crucial in the accounting cycle. They are important in analyzing the transaction data before entry into the computer. In addition, the accountant’s understanding and conclusion are often required to establish and administer adjustments that are desirable at the end of the reporting period.

References
  • Hunt, M. F. (2007). Problem-solving survival guide (Vol. 1). Hoboken, NJ: John Wiley & Sons.
  • Hunt, M. F. (2007). Problem-solving survival guide (Vol. 2). Hoboken, NJ: John Wiley & Sons.
  • Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007). Intermediate accounting (12th ed.). Hoboken, NJ: John Wiley & Sons.
  • Kieso, D. W., Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007).
  • Intermediate accounting study guide (12th ed., Vol. 1). Hoboken, NJ: John Wiley & Sons.
  • Kieso, D. W., Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007).
  • Intermediate accounting study guide (12th ed., Vol. 2). Hoboken, NJ: John Wiley & Sons.

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