Small Businesses Accounting Cycle

Most early-level  entrepreneurs and small business owners  perform the accounting functions by themselves until such time when the business is large enough to enable the hiring of a dedicated bookkeeper. Accounting may be defined as the process of recording business-related financial transactions over specific periods and summarizing them in financial statements that include balance, profit and loss and cash flows. An accountant is a person who keeps accounting books and documents related to the financial transactions of the institution. The accountant works periodically and repeatedly, and uses the same steps during the accounting cycle.

The Accounting Cycle

It is a period of time- usually annual, quarterly, or sometimes otherwise-, during which an accountant opens and updates new accounting books until closure of related accounts. At the end of the accounting cycle, the accountant issues the financial statements and rotates the accounts to a new cycle.

Some important accounting books

• Journal: An accounting book in which transactions are recorded as they occur and in chronological order from day to day
• Ledger: A book with a dedicated page for each account type such as sales, cash, accounts payable, accounts receivable, fixed assets, inventory, etc.

Work Steps during the accounting cycle

1. Collect information and supporting documents for transactions such as invoices, bank statements, receipts, payment requests, checks, or any other documents of business transactions that have taken place
2. Record transactions in the journal using the same order and date in which they occurred
3. At the end of the day, journal entries are posted to and matched with the ledger
4. At the end of a given accounting period, an account balance (Trial Balance) is prepared; it is a statement prepared using debit and credit balance sheets of the ledger accounts to test the accuracy of related accounting books, i.e., to ensure encompassing the balances of all ledger accounts on a certain date, in order to ensure that all balances and general ledger accounts are correct.
5. Amending the journal entries at the end of the period to reflect any change in the account balance at the end of the accounting period