What Is Full Cycle Bookkeeping?

Full cycle bookkeeping is a comprehensive accounting process that involves recording all financial transactions of a business. This starts from the initial transaction to the final financial statements. It encompasses every step of the accounting cycle, from setting up accounts and entering transactions to closing out accounts at the end of an accounting period.

The goal of full cycle bookkeeping is to provide accurate and timely financial information for businesses. This information is crucial for decision-making, budgeting, and forecasting.

8 Steps of a Full Cycle Bookkeeping

Here are some of the vital activities included in an eight-step cycle:

1. Identifying Transactions

This is the first step in a full cycle bookkeeping and accounting process and involves identifying the company’s financial transactions. It includes everything from purchases to sales, receipts, payments, and more. The transactions are sorted by type and compiled for easy identification and recording.

2. Recording Transactions in a Journal

Next, the identified transactions are recorded chronologically in the company’s journal, more often known as the book of original entries. The transactions are recorded with accurate details such as the amount, date, source, and destination of every fund transfer.

3. Posting the Transactions

After recording, the transactions are posted into the company’s general ledger. This ledger acts as the source for preparing the company’s financial reporting. The transaction details are transferred from the journal to the ledger, divided and sorted into corresponding accounts.

4. Preparing the Unadjusted Trial Balance

At this phase, the bookkeeper prepares an unadjusted trial balance. This includes creating a list of all the ledger accounts and determining their debit or credit balances. The main purpose is to ensure that the total debits equal the total credits in the financial records.

5. Analyzing the Worksheet

The bookkeeper uses the unadjusted trial balance to prepare a worksheet. The worksheet ensures that debits and credits match – providing a visual image of the company’s financial position. It involves comparing two sets of balances – the first from the general ledger and the second from the income summary.

6. Adjusting Journal Entry Discrepancies

If there are discrepancies in the trial balance, the bookkeeper needs to adjust the journal entries. They find the reasons for these discrepancies and make correct adjustment entries in the journal and ledger. This involves analyzing errors, omissions, or misstatements in the original recording or posting process.

7. Preparing a Financial Statement

With all balances and adjustments confirmed, the bookkeeper can now prepare the company’s financial statement. This statement contains the balance sheet, the income statement, and the cash flow statement – reflecting the company’s performance over a specific accounting period.

8. Closing the Books

This is the last step in full-cycle bookkeeping. It involves closing the company’s temporary accounts, such as the revenue and expense accounts, summarizing the profit/loss recorded, and transferring these details into permanent accounts in the company’s balance sheet. This clears the record and prepares it for tracking business transactions in the next accounting period.

 

Why Is Full Cycle Bookkeeping Important

 

• • Financial Accuracy. A full-cycle bookkeeper ensures the accuracy of accounting records. Every transaction is tracked and recorded, making it difficult for financial discrepancies or frauds to occur.

• • Budgeting and Planning. Full cycle bookkeeping assists in forecasting and budgeting. Businesses can plan their expenditures and investments more effectively, using accurate data from previous record transactions.

• • Cashflow Management. Businesses maintain a clear view of their cash flows by tracking all income and expenses. Doing so avoids cash shortages and manages financial crises more effectively.

• • Regulatory Compliance. Proper bookkeeping helps businesses follow accounting standards and laws, avoiding legal complications and penalties.

• • Business Analysis. Thorough bookkeeping allows businesses to analyze their financial activities in detail. This can identify trends, strengths, weaknesses, opportunities, and threats.

• • Investor Relations. Reliable financial records can improve business relations with current and prospective investors. Investors need accurate, timely information to assess the potential returns and risks of their investments.

• • Tax Preparation. Having complete and accurate records makes it easier to prepare and file tax returns. This prevents discrepancies and potential penalties during tax audits.

• • Decision Making. Full cycle bookkeeping provides vital details that a company can use for strategic decision-making. By understanding business finances fully, companies can make informed decisions about investing in growth, cutting costs, and other strategies.

• • Audit Preparation. Full cycle bookkeeping ensures that businesses are prepared for audits. Companies can provide auditors with accurate, organized financial records, making the audit process more efficient and effective.

Ways to Improve a Company’s Bookkeeping Methods

 

• • Use Accounting Software. Invest in the latest accounting or bookkeeping software that automates most tasks. Doing so greatly reduces the risk of manual errors.

• • Regular Updates. Ensure that the bookkeeping records are updated frequently. The ideal way is to update the books daily.

• • Regular Audits. Implement regular internal and external audits to ensure the accuracy of your books.

• • Training. Regular training and workshops should be conducted for the staff handling the bookkeeping tasks. Make them aware of the latest practices and trends in accounting.

• • Duty Segregation. To eliminate risk due to errors or fraud, segregate bookkeeping duties among the staff.

• • Use Cloud-Based Systems. Use cloud-based accounting systems to save data securely and access it from anywhere, anytime.

• • Record Recovery System. Implement a record recovery system in case of loss due to unforeseen circumstances such as cyber-attacks or natural disasters.

• • Maintain Bookkeeping Ethics. Maintaining high ethical standards in bookkeeping to ensure transparency and accountability is important.

• • Set Financial Goals. It’s impossible to know if the company is on track if it has no financial goals. Ensure these goals are defined and tracked using the bookkeeping system.

Are the Accounting Cycle and Budget Cycle Similar?

Accounting Cycle

 

• • Purpose. The accounting cycle gathers, processes and records the financial transactions of an organization. It focuses on accurately presenting a company’s financial performance to stakeholders like shareholders, employees, and regulators.

• • Time Frame. The accounting cycle usually covers a certain period, often a fiscal quarter or year.

• • Steps. The accounting cycle starts with recording transactions in a journal, posting them to ledger accounts, preparing a trial balance, making adjusting entries, preparing an adjusted trial balance, then preparing financial statements and closing the books.

• • Result. The end result of the accounting cycle is the generation of accurate financial statements, such as balance sheets, income statements, and cash flows statements.

Budget Cycle

 

• • Purpose. The budget cycle is used to plan and control an organization’s financial resources. It includes estimating future revenues and expenses to set goals and objectives for future performance.

• • Time Frame. The budget cycle usually corresponds to the organization’s fiscal year but begins well before the new fiscal year to allow for planning, development, and approval.

• • Steps. The budget cycle involves preparing estimates, reviewing budget submissions, consolidating and reviewing budget proposals, approving the final budget, implementing the budget, and monitoring and controlling expenditures.

• • Result. The result of a budget cycle is a detailed plan of an organization’s expected income and expenses for the upcoming fiscal year. This allows for effective planning and control of the organization’s financial resources.

• • Authority. Budgeting often involves more legal elements, requiring approval from top executives or a board of directors. At the same time, the accounting cycle is a routine that companies do within an organization’s accounting department.

Improve Your Business Finances With Full Cycle Bookkeeping Insights From Kevin Martin Accounting

Full cycle bookkeeping is an extensive approach to managing a company’s financial records, ensuring accuracy from the initial recording of transactions to the final preparation of financial statements. It is the backbone of financial health, offering clarity and direction for strategic business decisions.

If your company is looking to improve its financial processes and gain valuable insights from full cycle bookkeeping, Kevin Martin Accounting can help. With years of experience providing top-notch bookkeeping and accounting services, we have a team of dedicated professionals who can assist you with all your bookkeeping needs. Our services cover a wide range of industries, and we use the latest technology and software to ensure accurate and timely record-keeping. 

Contact us now to schedule an appointment!