Activities that aim to provide information with a series of systematic data collection and processing in the current period are called the accounting cycle. The stages of the accounting cycle must be passed to produce information that becomes a reference in making decisions. If you need an accountant to carry out the accounting stages properly, you can contact us at Amanda Mckenzie providing XERO Services in Sydney.
Cycles are a series of recurring events that are regular and gradual. Thus, the accounting cycle is also carried out continuously following the rules and rules that must be considered. It is intended that the preparation of information can be generally accepted and can be accounted for.
The stages of the accounting cycle are divided into seven stages. Each stage will be discussed in full below:
1. Identify Transactions
The first thing you need to do in the accounting cycle is to identify transactions during a certain period. Its function is so that data, transaction evidence can be collected, and classifying transactions that have already occurred.
Proof of transactions including receipts, notes, memos, and invoices that have been verified. This transaction will be made in nominal money and useful for financial reports and analysis. Evidence is very important so that financial statements can be accounted for.
2. Record Transactions in the Journal
Once identified, transactions must be recorded in a journal. Do it according to the chronological order of financial transactions. In accounting standards, there are two types of journals including general and special journals.
3. Move to the Ledger
The next stage of the accounting cycle is to move the journal into the ledger. Which ledger contains financial information to make financial reports. In the ledger, transaction information is grouped according to the type and level of liquidity.
4. Arrange Balance Sheet
Compiling a trial balance is the fourth point in the accounting cycle stage. The preparation is based on the records that have been made in a ledger. On the trial balance, there is a general ledger for one period. So, what needs to be done is to move the balance in the general ledger on the trial balance.
5. Make an Adjustment Journal
An adjusting entry is made for types of transactions that have not been recorded or can also be made to justify the value of a transaction if something goes wrong. This journal is arranged on a worksheet. Which will be recorded all transactions that have and are happening. The preparation is also done periodically on an accrual basis.
6. Making Financial Statements
Next, make a financial report. Among the accounts that must be included are the income statement, statement of cash flows, statement of changes in capital, and balance sheet. The financial statements show the inflows and outflows of money that occur when the company conducts operations.
7. Make a Closing Journal
In the accounting cycle, the last thing to compile is a closing journal. The function is to make the total nominal of each account zero. With the closure, the company’s processes and activities in the related period have ended. So, the company will be ready to start the next period. Later, the balance in the closing journal will be used in the initial balance of the period that follows.