Accounting Cycle

Accounting work is based on recording of financial transactions in a chronological order on a day-to-day basis. From the recorded data, various reports are generated and presented.

In order to have a meaningful reporting format, specific timelines are specified which are referred to as “ Accounting Cycles “. From the Process perspective, the same term is also being used to refer the method or process of accounting flow, viz., Journal, Ledger, Trial Balance, Final Accounts, the formats of such reports etc.

From the time perspective, Accounting Cycle refers to the range of dates or time horizon, for which the accounting reports are prepared. In simple terms, it represents “ the from and to dates “ of Accounting work and Reports.

World over, countries have different accounting cycle which are termed as “ Financial Years “. While certain countries consider January to December or July to June as the financial year, others consider April to March as the financial year. This is also important for the fact of computation of taxes, capital gains etc., and Government policy changes on Taxation and Budgeting is based on this financial year timeline.

But, from the practical point of view, the sub-division of the Accounting Cycle in shorter formats of Quarters, Month and Week is being practiced. The reports are generated for specific accounting cycles.

Generally, organizations are meant to provide Quarterly Statement of Accounts, indicating their financial performance, with comparison to previous Quarters and previous financial year for the corresponding periods. Some countries have made it mandatory to furnish such Quarterly reports, especially for tax compliance requirements.

Certain progressive companies adopt a monthly and a weekly accounting cycle, which enable them to identify grey areas and course-correct swiftly and increase efficiencies of operations.

The shorter the accounting cycle, the better the financial feedback to Management, and the role of Financial Management Accountants are much sought-after to prepare such reports for different Accounting cycles.