Do you find accounting overwhelming? Many business owners and decision-makers shy away from accounting because of its complexities. But it is a critical aspect of any business, as it helps decision-makers make informed financial decisions. It may seem intimidating, but it is essential to know how accounting works, especially the accounting cycle, which is a process that accountants follow to create financial reports. In a recent The ABBA Initiative Webinar titled "Business Essentials," Miss Cheriza Tulod, a highly experienced accountant, discussed the accounting cycle and how it has evolved with technology.
Why Understanding the Accounting Cycle is Important
Accounting processes financial information and produces financial reports that show the company's financial performance and position. These reports help decision-makers understand the company's profitability and financial health. It is essential to understand how these reports are created and processed to make informed financial decisions. Without this understanding, it may be challenging to control financial processes, prevent fraud, and mismanagement.
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Understanding the 8 Steps of the Accounting Cycle
The accounting cycle is a process that accountants use to create financial reports. There are eight traditional steps in the accounting cycle, which are:
- Transactions - the purchase or sale of goods and services that start the process.
- Journal entries - where you classify transactions as assets, liabilities, equity, revenue, or expenses.
- Posting to the ledger - the process of recording journal entries in the ledger.
- Preparing the trial balance - calculating the balance of each account.
- Worksheet - a sheet of paper used to prepare reports.
- Making adjusting entries - to ensure that financial statements only include relevant information for the period.
- Preparing financial statements - the product of accounting, showing financial reports or financial statements.
- Closing of the books - the last step of the accounting cycle, where you close revenue and expense accounts and start a new cycle.
Although all the steps are essential, the good news is that technology has made the process easier, and there are now streamlined accounting systems that can make the process more accessible, even for non-accountants.
The Evolution of the Accounting Cycle
Accountants today use tools or systems to streamline the process. With these tools, even non-accountants can do the accounting cycle. Self-service systems use simplified terms, such as BUY and PAY instead of Purchase/Accounts Payable Invoice and Disbursement, and SELL and COLLECT for customer transactions.
Once a transaction is encoded into the system, it will automatically create the journal entry. No need to worry about how to classify or how to make a journal entry because the system will do it for you. You can also automatically post journal entries to the ledger and prepare the trial balance, reducing the risk of errors.
With the help of accounting tools, the process of making adjusting entries, preparing financial statements, and closing the books can be done with ease. Accounting systems can generate reports in real-time and can give you more detailed information about your business's financial performance.
Now, let us close with a very important question. What if you don’t know how to go about doing your accounting or what if you don’t know which accounting tools to choose?
Well, let us give you very helpful tips:
- Make sure you choose an accounting system that is not expensive to set-up and you can just stop using it anytime you feel like it’s not helping you.
- Look for an online accounting system for subscription. They can provide you with this easy arrangement. No big investment on the tools.
- Choose an accounting system provider that gives you continuous support as you implement your day to day transactions and who will not always charge you every time you need their help.
If you can find a provider who is willing to customize the reports according to your requirements, then you have found a jackpot!
Great news for you! You need look no further than YAHSHUA Books Online (YBO).
YBO ticks all the boxes! Not only does YBO offer the features you are seeking, but it goes above and beyond to provide unparalleled value and top-notch performance. So, get ready to be blown away by what YBO can do for you!
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Conclusion
Understanding the accounting cycle is essential for business owners and decision-makers, as it helps in making informed financial decisions. The traditional eight steps may seem daunting, but with the evolution of technology, accounting tools have made the process more accessible, even for non-accountants. Streamlined accounting systems reduce the risk of errors and provide more detailed information in real-time. With the help of these tools, business owners like you can make better financial decisions and have better control over your financial processes.