First-grade business students often learn about the accounting cycle. This is an 8-step process that defines how companies can manage their financial records to produce timely and accurate reports and mitigate the risk of financial fraud. Accounting cycle also referred to as “Record to Report” or “R2R Processes” is a suitable way to talk about accounting as a business function.
There are only eight steps, but these steps require hundreds of repetitive manual tasks for the accounting staff to complete. They are:
1. Recognize transactions
The accounting cycle starts with the recognition of financially significant commercial transactions, which are those that involve the gathering or distribution of money. Working with personnel from several departments to gather this information may necessitate the accounting team accessing multiple systems. Vendor billing information, employee expenditure reports, bank statements, are all examples of relevant data in various formats.
2. Make notes of transactions in the journal
The next step is to enter these transactions into the company's accounting system. Journal entries are usually hand written. Most companies now, on the other hand, employ a digital diary, which can be as simple as a spreadsheet. The amount of labor necessary to record journal entries has not altered, especially when transaction details are maintained in many systems that are only available on paper. Manual data input is required to enter information into the accounting system, which is a difficult and time-consuming operation that raises the risk of accounting errors.
3. Create a general ledger entry for each transaction
Once approved, the journal entry is posted to the general ledger. This can also be performed manually, with accounting employees individually posting each record. When processing hundreds of operations, this time-consuming process is frequent with entry-level accounting systems and can be a waste of time.
4. Create an unadjusted trial balance
Nearing the end of the accounting period, the finance team runs a trial balance to ensure that all transactions are recorded correctly, and the account is balanced. Many accounting systems make this difficult by requiring companies to use long and complex account codes when tracking expenses, sales, and other transactions by department, location, or other category.
5. Check the worksheet
If your account is out of balance (as is often the case with some companies), your accounting team will need to determine the cause of the problem. Because this normally occurs at the end of the month, it is necessary to do the task early. This is not as simple as it appears. The main task of accounting is to ensure accuracy, and manually verifying thousands of accounts can be time-consuming.
6. Enter the adjustment
In addition to correcting errors, accounting may also require you to create adjustment entries to account for non-cash costs such as accrual accounting and depreciation. These entries are typically collected on a set schedule. For example, a company may pay an annual premium at the beginning of the year and then incur costs evenly over the next 12 months. Spreadsheets are often used to track these schedules, so there is a significant risk of data entry and calculation errors.
7. Preparation of the annual report
As soon as the adjustments are made and the account balance is adjusted, the annual financial statements can be finalized. Companies may repeat multiple reports, such as requests for small changes before the numbers are final. Accounting software with inflexible reporting options can make it difficult to format financial reports to meet the needs of everyone.
8. Closes the accounting period
The final step is to close the book. Best-in-class companies can do this within 3-4 days of the deadline. However, according to research conducted by the American Productivity and Quality Center, more than half of all organizations take more than four days to close a book. For organizations with limited automation, it can take up to 6 days or more to complete.
The accounting cycle is automated by NetSuite.
NetSuite prepares you to move from entry-level accounting software and spreadsheets to error-prone manual data entry and an end-to-end automated accounting solution that eliminates the time and effort required. It provides a complete accounting solution for organizations that are ready to minimize routine accounting tasks.
By removing time
-and labor-intensive procedures, automating the accounting cycle with NetSuite reduces time and improves accounting staff efficiency. NetSuite has the following features:
• Accounting employees have visibility into every business transaction thanks to a consolidated library of organizational and financial data.
• Transaction matching and auto-posting journal entries are based on rules that reduce the requirement for manual data entry and thereby reduce the likelihood of errors.
• A flexible reporting tool that facilitates the development of custom layouts that meet the needs of different stakeholders.
To learn more about NetSuite, visit Jobin & Jismi.