Recording and Analyzing Accounting Cycles
The accounting cycle is a range of activities that a business or an institution carries out on a periodic basis in order to record financial data and evaluate the performance of its operations. The accounting cycle is typically broken down into the four main parts of recording, reporting, analyzing and closing.
Recording – The process of recording financial data is the initial step in the accounting cycle. Accountants and bookkeepers enter data from the original source such as invoices, receipts, sales and purchase orders. They also enter data from the daily transactions into the general ledger. The process also involves recording and monitoring of the accounts receivable and accounts payable as well as posting of revenue and expenses. This process usually starts with the preparation of the trial balance.
Reporting- Once the data is recorded they are converted into financial statements like income statement, balance sheet and cash flow statement. Financial reports are divided into report presentations like the summary or single step income statement and multi-step income statement. The reports are analyzed and interpreted to find any problems or issues related to the business. It is also used to compare the financial performance of the business over time.
Analyzing - This is important to assess the performance of the business. Financial analysis includes ratio analysis, cash flow analysis, cost reduction and profit enhancement analysis. The findings of the analysis are then presented in order to recommend any changes that is necessary in order to improve the performance of the business.
Closing- Closing the accounting cycle involves the preparation of the financial statements from the trial balance and ensuring that the trial balance, ledger and financial statements are in agreement with each other. This process is important for the preparation of the following period’s trial balance and financials.
The accounting cycle is a continuous process of recording, measuring and communicating financial information. It is important to set up an effective accounting system in order to ensure accurate financial information. The accounting cycle is essential to any business or organization in order to keep track of its financial performance and make informed decisions. The accounting cycle allows businesses to evaluate the financial health of their operations and identify areas that need improvements.
