Keeping Up With Bookkeeping During Accounting Cycles for Your Business
One of the most important parts of a bookkeeper’s job is to track accounting cycles from beginning to end every fiscal year. A bookkeeper must stay organized to avoid errors and make the extensive process significantly easier. There are eight parts of the accounting cycle: transactions, journal entries, posting to the general ledger (GL), trial balance, checking and adjusting worksheets, adjusting entries, financial statements, and closing the revenue and expense accounts.
- Separate Business Transactions: The first step in the accounting cycle is identifying transactions. You need to sort out your business transactions and separate them from personal expenses such as groceries, clothes, or other purchases that do not involve the business. This will make accounting for your business significantly easier.
- Record Transactions: Another vital part of the accounting cycle is recording the business expenses in the journal. It functions like a checkbook, giving you a chronological list of the expenses.
- Post Journal Entries to the General Ledger: The general ledger is a record of all of the financial exchanges and transactions that your business has made since you first began. Add the journal entries to the general ledger so that you can be up to date and have information showing the overall patterns and trends of your business.
- Use an Unadjusted Trial Balance: You need to be sure that you do not have an error in your financial records. By using an unadjusted trial balance, you can compare the amounts from your debits and credits. If they are not equal, you may have made a mistake at some point and should go back to check.
- Use Adjusted Entries: As mentioned above, everything must be equal at the end of an accounting period. However, you may have pending expenses or payments. Use adjusted entries to record these in the books.
- Use an Adjusted Trial Balance: After adjusting entries, you need to be sure that the amounts match. Use an adjusted trial balance to see if you were successful in balancing the debits and credits.
- Create Financial Statements: Next, you must create statements that give you general information about how your business has developed. The financial statements include income statements, balance sheets, and cash flow statements. These can help you take steps to improve your business.
- Close the Books: The accounting cycle ends with closing the books, which includes activities such as updating accounts payable, reconciling accounts, counting inventory, and reviewing petty cash.
Staying organized throughout the accounting cycle is vital. Any mistakes you make could, if undiscovered, have a dire effect on the profits of your business. Organization will not only help reduce the chances of errors, but also make the accounting process significantly easier.
A large part of financial organization is how you store the documents. Many accountants use file folders, three-ring binders, expandable files, and backups for digital storage. Use file folders for financial documents such as invoices and other information about employees, vendors, and customers.
Three-ring binders are great for more extensive information. Your general ledger, for example, is good for a three-ring binder because it is a long record and you can easily sort the sections in a binder.
Expandable files are ideal for sorting and organizing outstanding bills and vendor activity. It makes the information easy to access quickly.
Backup locations for digital storage is vital. If you store any information on computers, you need to have it also located somewhere else so that you will not lose the information if something happens to your computer.