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The 11 Important Steps in the Accounting Cycle

The accounting cycle is a tool that gives a clear picture of the state of the company from one period to the next. In this cycle, the company receives an accurate overview of the financial statements. Therefore, every company of course needs this cycle, including trading companies. The accounting cycle in trading companies is generally the same as in other companies. To simplify this process, get help from the Accounting system that can automate business processes starting from transactions, compiling the company’s annual financial statements, closing the balance in the closing journal, until it ends in the cancellation journal. 

Accounting Cycle

Table of Content

Understanding the Accounting Cycle

Accounting is a process of recording business transactions and financial reporting. The process reflects a continuous and uninterrupted cycle. Accounting has a cycle related to the activities of recording business transactions and financial reporting.

Why is the Accounting Cycle Important for a Trading Company?

The accounting cycle in a trading company will produce financial statements that are the result of recording each division and part of the company containing income and expenses in a certain period, it can also be with fintech ERP.

With this cycle, decision makers such as managers, directors or company owners can receive complete information about the company’s finances. This cycle also facilitates the completion of accounting work. In addition, the accounting cycle helps systematic thinking in understanding a process of creating financial statements or accounting information.

Example of a Complete Trading Company Accounting Cycle

The trading company accounting cycle is the process of making a trading company financial report for a certain period in the following order:

Identification Transactions in the General Journal

The general journal is the first activity in it that records transactions from the company’s revenue as well as expense cycles for a certain period.

Creating a Subsidiary Ledger

The purpose of the subsidiary ledger is to detail all account balances and also transactions that affect accounting changes in the financial statements.

Post to Ledger

Next is to move all transactions into the ledger, which aims to facilitate the identification process in the journal.

Cost of Goods Sold Report

In building as well as developing a business, you are not just thinking about profits or profits. But, you also need to record the expenses you make from the beginning of opening the business in a certain period such as, raw material costs, employee salary burdens, and other costs. To facilitate the employee payroll system you can use HRM software.

Creating a Trial Balance

Trial balance is a term of trial balance that has all the data from the company’s general ledger. Trial balance account number, account name, debit, and credit for a certain period are examples of it.

Adjusting journal entry

Adjusting journals record changes in balances in a particular account that can ultimately show the actual balance.

Trial After Adjustment

The information on the numbers in this column is the result of adding or subtracting the numbers in the adjusting journal column.

Preparing Financial Statements

The purpose of financial reporting is to provide information relating to the financial position, performance also changes in the financial position

Making Closing Journals in the Trading Company’s Accounting Cycle

The closing journal is an activity to journalize and close its process after that for the next period you can prepare the accounts that will be used as financial statement journals.

Trial After Closing

A post-closing trial balance is a list containing all real account balances. In this step, the accountant prepares a post-closing trial balance.

Turning Journal

A reversing journal is a journal that serves to reverse adjusting entries to form a balance sheet account.

Conclusion

The accounting cycle is a series of steps that occur over a predetermined period of time, resulting in financial statements that are useful for users of financial statements. It can be internal and external parties. Starting with the occurrence of transactions that are recorded and collected systematically.

Meanwhile, accounting was still conventional where all input of financial statement journals were still processed manually, then with the presence of Accounting Software such as an accounting program from HashMicro which contains all of these processes it becomes easier, more efficient, and has the main features complete so that it can save time. Moreover, this software can be integrated with Sales System to simply manage unsettled or past-due invoices from customers, and assisting you in maintaining a healthy cash flow. 

Accounting Cycle

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Vanecia
Vanecia
Full-time Internship Content Writer at HashMicro | Content is the reason search began in the first place.

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