The Accounting Cycle:
As a business owner, it is important to keep accurate records. Not only for external reporting purposes, but also to monitor the internal health of your company. In the past, we have provided details on checking the health of your company (see “Taking Your Pulse”, “Your Assets”, and “Measuring Profitability”). But before, you can do this, it is important to ensure that you have established a sound process to keep track of all your business transactions accurately and efficiently to provide you with the management reporting you need to monitor your business. All business owners should at least understand the basics of the accounting cycle. This is an important first step towards establishing sound accounting processes that will generate the reporting you need to run your business.
So what is the accounting cycle? The accounting cycle is a series of steps that you establish to collect all business transactions, process and record them, and then prepare financial reports from them. The accounting period can be monthly, quarterly, semi-annually, or annually depending on the needs of your requirements. The accounting cycle takes place during one accounting period, and then starts again in the next accounting period.
Here’s what a basic accounting cycle looks like:
A reliable accounting process should not be just another administrative burden on your business, but rather a useful tool to help you manage and make better decisions. It should provide you with details of the health of your company and help you with your planning for the future. But this is only possible if you make the process efficient and repeatable. If there are any specific areas you would like to me to focus on and provide a ‘deeper dive’, let me know.