If you summarize the process of bookkeeping, then it can be broken into five steps. When you hire a company for Bookkeeping in Adelaide, you should ensure that these steps are followed.
- Collection and analysis of transactions
- Journalizing of entries
- Posting of entries into the ledger
- Checking for errors and trial balance
- Reporting period
#1 Collection and analysis of transactions
This is the first step of accounting. An expert Bookkeeper in Adelaide will analyze transactions to understand the financial position of the company. Some examples of these transactions are:
- Revenue earned
- Cash payments from customers
- Asset purchases
- Accounts receivable
- Writing-off Bad debts
- Dividends declared
- Necessary receipts
#2 Journalizing of entries
In the old days, the process of journalizing entries was done by hand. In today’s time, mostly computers are being used for journalizing entries. One good example of an accounting cycle is the POS or Point Of Sales system. They can quickly and efficiently journal entries entered into the accounting journal.
The details recorded in the system are the date, amount, and location for future reference.
#3 Posting of entries into the ledger
As mentioned earlier, journal entries are done in the order they happen. It is called chronological order. But in the general ledger, they are entered account-wise. Account means how the business buckets transactions, for example, goods sold, investments, tax paid, etc.
By looking at the general ledger, anyone can know about the current balance of the company. It is also the fastest way to search for any transaction through the accounts listed in the ledger.
#4 Checking for errors and trial balance
This step occurs at the end of the accounting period. Here, you create an unadjusted trial balance. It is done by balancing debits and credits at a single place, e.g., a table. It follows the philosophy of the double-entry system. The sum of all credits and debits should be balanced. If not, then there is an error in the entries.
In case any errors are found, then a reconciliation is required. The entire process of finding errors, correcting errors, and closing temporary adjusting accounts will be done at the end of the trial balance period.
#5 Reporting period
The final step in the accounting cycle is the reporting period. It encompasses the preparation and publishing of financial reports for the period. Transactions are reported once the accounting period is closed.
Some mandatory reports are:
- The income statement
- The balance sheet
- The statement of changes in the financial position
The statement of retained earnings