Bookkeeping is considered one of the most important tasks accomplished by organizations, both public and private. It is a process of keeping a record of all transactions made in the business with respect to gains, revenues, expenditures, profitability, and loss. In this way, bookkeeping is the most fundamental step of the accounting cycle that is indispensable for all businesses.
Nevertheless, the business scenario is rapidly changing over the years, particularly in the most advanced countries. For example, the higher competition in business and the recent modifications UAE tax system have augmented the need for proper recordkeeping to ensure transparency and trust. So, businesses are rapidly acquiring the services of the best accounting firms in Dubai for managing their bookkeeping requirements for sound financial management. It helps the companies to deal with uncertainties in financial matters for cash flow optimization.
However, it is essential to understand the phases of the accounting cycle to be on the same page of knowledge and trust after hiring professional bookkeeping. So, the article is all about it!
What is the Accounting Cycle?
Basically, the accounting cycle is a process comprising eight steps or phases to complete bookkeeping tasks and activities within the business. It helps the companies get a comprehensive guide for taking the records of financial transactions and analyzing reports related to financial management.
The cycle of accounting is a comprehensive process starting from day-to-day financial matters to creating financial statement reports.
Top 8 Steps of Accounting Cycle Indispensable for Businesses
Bookkeeping is part and parcel of every business organization. For this reason, the companies have to go through several stages essential for accomplishing the task. These stages are collectively known as the accounting cycle.
Let’s consider the main steps of the accounting cycle to help you get through the process successfully:
1. Identification of transactions
It is the most fundamental step of the cycle that requires the business companies to deal with the initial recording of the day-to-day business transactions. The companies should focus on their daily needs to identify all potential transactions that have to be made per day for higher transparency.
Not only this, the point of sales system used by the companies is required to be monitored, and all financial data is being recorded to figure out the sales and revenue generated regularly.
2. Maintain Record-Journal
Once the transactions for the business processes are required, the companies move to the next phase of the accounting cycle. They are then required to maintain a recording journal that keeps the receipts of all transactions made on that day. In this way, the paperwork for accounting starts in a company.
3. Posting process
The process of posting is related to the entries made in the bookkeeping journal. Once a transaction is recorded in the journal, it is required by the companies to post it to the account in the general ledger. It permits the accountants to monitor finances for better optimization of cash flow and business accounts.
4. Unadjusted trial of balance
It is considered the most important step in the cycle of accounting. The companies are required to paper accounting sheets by calculating the trial balance for unadjusted financial transactions. For example, if a transaction is made but not adjusted on the same day, it will move to the next working day for processing.
5. Worksheet preparation
The fifth phase of the accounting cycle is the management of financial matters by creating worksheets. It includes the detail of what transactions are made and the remaining under the balance trial for unadjusted financial matters. Companies need to keep a record of everything related to finances when it comes to bookkeeping.
6. Reconsider the journal
After maintaining the worksheet, the companies then reconsider the journal of recording for updating the entries. The bookkeepers are required to be aligned with the records maintained by the accounting departments when it comes to bookkeeping journals. Transparency is ensured in this way for the business operating across the world.
7. Creation of financial statements
The companies have to go through a rigorous process of an accounting cycle to maintain their financial records. Once the businesses have completed the six stages, they are now in a better position to look for financial statement creation and maintenance. These statements include the cash flow detail and balance sheets.
8. Closing the financial books
Last but not least, the bookkeepers have to complete the financial statements while keeping the record journal, worksheets, and other records registers. It is now the time to close the financial book for a defined period and recheck the financial matters to be ready for the audit. This is how the cycle of accounting actually works.
Overwhelmed about Loopholes in Your Accounting Records?
Summing up, the success of every business largely depends on the optimized management of finances. Therefore, the companies should be well-prepared for comprehensive bookkeeping while completing all the stages related to accounting.
Gone are the day when ignoring the processes could help you still stay in business. If you are operating in the UAE, you should be vigilant to comply with the process to avoid strict penalties. Does it make you worried as you don’t know how to start with the process? Don’t forget to hire the best accounting firms to assist you throughout all the stages of the accounting cycle for higher optimization in financial matters.
Remember, business is all about money, so if you ignore keeping a record, you will repent it soon. Be proactive in bookkeeping accomplishments!
Learn more: Audit of Non-Profit Organisation: An Essential Checklist To Follow