The accounting cycle is a basic multi-step process that provides a clear framework for the recording, analysis and final reporting of a business’s financial activities. Think of it as a holistic process, adopted by Malaysia accounting services and others, of recording and processing all financial transactions of a company, incorporating all accounts, journal entries, T accounts, debits, and credits, adjusting entries over a full cycle, from right when the transaction occurs to its representation on the financial statements to the closing the accounts. A bookkeeper usually keeps track of the full accounting cycle from start to finish, and the cycle repeats itself every fiscal year.
Malaysia Accounting Company
Trust that your company’s accounting functions are in good hands when you outsource them to a reliable Malaysia accounting company, but as a business operator, it is definitely an added advantage if you know the 8 Steps of the Accounting Cycle.
1: Identify Transactions
The first step in the accounting cycle involves identifying transactions. Each of a company’s many transactions in the accounting cycle needs to be properly recorded on the company’s books. Point of sale technology linked with the company’s books are often adopted to record sales transactions. In addition to sales, there are also many varieties of expenses that are to be properly identified for the books.
2: Record Transactions in a Journal
The second step involves entering each transaction into the company’s journal in chronological order. Accrual accounting requires the matching of revenues with expenses, booking both at the same time of sale. The choice between accrual and cash accounting will determine when transactions are officially recorded.
Journal entries will in turn be posted to an account in the general ledger. The general ledger provides a breakdown of all accounting activities by account. One of the most commonly referenced accounts in the general ledger is the cash account that details how much cash is available.
4: Trial Balance
At the end of the accounting period, a trial balance is calculated, which reflects the company’s unadjusted balances in each account. The unadjusted trial balance is then carried forward for testing and analysis.
A worksheet is created to ensure that debits and credits are equal. If there are discrepancies then adjustments are made. Adjusting entries may also be needed for revenue and expense matching when using accrual accounting.
6: Adjusting Entries
Adjustments are recorded as journal entries where made and where necessary.
7: Financial Statements
Balance sheet, income statement, and cash flow statement can be generated using the correct balances after adjustment.
8: Closing the Books
The final step involves ending the accounting cycle by closing its books on a specified closing date. Closing statements provide a report for analysis of performance over the period.