Basic Accounting Procedures
What are the six steps in the accounting cycle?
Using generally accepted accounting principles, accountants record and report financial data in similar ways for all firms. They report their findings in financial statements that summarize a company’s business transactions over a specified time period. As mentioned earlier, the three major financial statements are the balance sheet, income statement, and statement of cash flows.
People sometimes confuse accounting with bookkeeping. Accounting is a much broader concept. Bookkeeping, the system used to record a firm’s financial transactions, is a routine, clerical process. Accountants take bookkeepers’ transactions, classify and summarize the financial information, and then prepare and analyze financial reports. Accountants also develop and manage financial systems and help plan the firm’s financial strategy.
The Accounting Cycle
The accounting cycle refers to the process of generating financial statements, beginning with a business transaction and ending with the preparation of the report. (Figure) shows the six steps in the accounting cycle. The first step in the cycle is to analyze the data collected from many sources. All transactions that have a financial impact on the firm—sales, payments to employees and suppliers, interest and tax payments, purchases of inventory, and the like—must be documented. The accountant must review the documents to make sure they’re complete
Next, each transaction is recorded in a journal, a listing of financial transactions in chronological order. The journal entries are then recorded in ledgers, which show increases and decreases in specific asset, liability, and owners’ equity accounts. The ledger totals for each account are summarized in a trial balance, which is used to confirm the accuracy of the figures. These values are used to prepare financial statements and management reports. Finally, individuals analyze these reports and make decisions based on the information in them.
QuickBooks is a well-known software developer that provides business-management solutions to businesses of different sizes. The company’s accounting software tools benefit professionals by automating a broad range of accounting and other business tasks. QuickBooks has become standard in the accounting and business fields, assisting in managerial decision-making and streamlining bookkeeping and accounting processes
Accounting Best Practices Ignored: Ways Entrepreneurs Waste Money on Accounting and Stifle Growth
That is unfortunate because effective accounting is a quiet ingredient of business success. Articles on marketing and leadership steal the headlines, but rock-solid companies have a rock-solid approach to accounting, almost without exception.
I recently witnessed the virtual collapse of a promising company with a beautiful product line, a dashing website, and an owner who knew how to network. The major lack was a good job costing system to show the true cost of each manufactured product.
Neglect the Month End Close
A “close” is where you formally review each line on your balance sheet and make any necessary corrections. In the end, the reviewed period is locked down, so it cannot be changed. Ideally, this is done monthly, as soon after month end as possible.
Why is a month end close necessary?
An income statement can only be accurate if the balance sheet is accurate. Even if you don’t understand why, latch on to this concept and don’t forget it. Most lines on an income statement happen without much thought (e.g. customer invoices automatically populate the revenue line) but generating a clean balance sheet takes manual effort and review.
Without a formal close, the bottom line is never final. I’ve seen accountants go back even months later and make significant adjustments to past months. In that environment, monthly financials become meaningless because everyone knows they will change.
A formal close draws attention to the monthly results. In a business that has a timely formal close, the owners look forward to the close date and the final numbers. This focus on results leads to better financial decisions and timely reaction to trends.
Develop Complex Incentive Programs
Many businesses are making this mistake and don’t even realize it. That is because incentive programs tend to evolve over time and only gradually turn into a mess.
Reasons you may want to hire an accountant to do your taxes
Filing your taxes can be a hassle, depending on your situation. If you’re just an individual filling out a W-2, you can likely handle that yourself. But when your return is more complex, you might find it’s worth hiring a professional — someone who can save you not only time and stress but also money.
You have a small business or side-hustle
If you own your own business, there are many possible tax write-offs, and a professional has the expertise to help you navigate them.
The IRS contacts you
Even if the IRS reaches out asking for something as simple as substantiation of expenses related to a car you bought, Kohler recommends looping in a professional. “It could be a seemingly benign or innocuous letter,” he says. “But, if you handle it incorrectly, it can turn into a big deal quickly.”
You’re planning for your kids to go to college
If you have a child heading to college and you’re planning on filling out the Free Application for Federal Student Aid (FAFSA), assistance could be helpful.
You own a rental property
A return on a real estate investment can get tricky, and a professional can help you figure out what kinds of deductions you may be entitled to.
What does an accountant do?
An accountant prepares financial documents and checks those documents for accuracy, and he or she may make recommendations based on an organization’s or individual’s financial status. People who work in the field provide an indispensable service by helping their clients, or company, ensure solvency and grow in prosperity.
What Can You Expect from an Accounting Job? Responsibilities
An accountant’s primary function is to organize financial data and make recommendations based on that data. However, it isn’t really fair to make sweeping generalizations about what accountants do because there are several different types of accountants. While the bare bones of each accounting field might be the same, the specifics can vary widely.
Types of accountants:
Financial accountant
Management accountant
Tax accountant
Government accountant
Project accountant
Forensic accountant
Social accountant
Public accountant
Depending on an accountant’s specialty field and position within a company, he or she may perform any of the following duties:
Scrutinize financial documents to make sure they are accurate and complete.
Prepare financial documents and reports.
Offer recommendations to help clients make wise financial decisions.
Work to comply with local, state, and federal laws. Stay up to date on these laws as they change from year to year.
Keep financial records organized and up to date.
Use sophisticated accounting software to make the most of provided data.
Help businesses and individuals be more efficient financially.
Look for discrepancies in financial data and correct errors.
Investigate any oddities in financial statements.
Conduct audits for businesses and individuals.
Work with fellow accountants to provide comprehensive reports for businesses.
Accounting Interview Questions to Ask Every Time
Assessing an Applicant’s Skills
When you’re trying to gauge a candidate’s technical skills, it’s often best to ask straightforward accounting interview questions. But you can also learn something about applicants’ soft skills with these types of queries.
How do you stay up to date on current accounting laws and regulations?
Given the rate of change in the accounting and finance industry, it’s crucial to hire accounting and finance professionals who make a point of staying informed. Top candidates will be able to tell you how they monitor the latest developments, whether it’s through subscriptions to industry publications, memberships in professional organizations, or attendance at accounting conferences and webinars.
What are the top three skills every good accountant has?
In response to this interview question, applicants will typically name what they think are their three best attributes. Look for candidates who focus on a mix of hard skills, such as knowledge of big data concepts, and softer attributes like business acumen, communication skills and customer service skills. Top applicants will include examples of how they’ve demonstrated and developed these skills in past jobs
What types of accounting software have you used in previous jobs?
Include this in your list of accounting interview questions to ask because you’ll learn whether a candidate already knows the system you use at your firm or whether training during the first days on the job will be required.
Give me examples of the types of reports you generated in your last job.
Like the previous question, this query will provide insight into a candidate’s experience and whether it fits well with the job duties of the open position. If you’re looking for someone to generate income and cash flow statements, for example, it’s good to know how — or if — a candidate has prepared these types of reports in the past.