professional diploma in bookkeeping

BOOKKEEPINGP R O F E S S I O N A L D I P L O M A I N

Lesson 2: The Accounting Cycle

The accounting cycle

Lesson ObjectivesLesson 2

Key finance processes

Benefits of sound processes

Life cycle of a transaction

Typical business transactions

Ni qui t a Hart l ey

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Ask your educator

Questions?

Trivia time

What did the accountant, Walter Diemar, invent in 1928?Answer:

Will be revealed at the end of the lesson.

Lesson 1 review

Accounting frameworks

Double-entry system

Where it all began

• IFRS: International Financial Reporting Standards

• GAAP: Generally Accepted Accounting Principles

• AFS: Annual Financial Statements

• GL: General Ledger

• TB: Trial Balance

Acronyms

The Accounting Cycle

The accounting cycle• A.K.A the bookkeeping cycle

• End goal to produce accurate financial summary

• Process happens over a financial year

• Completed in a series of steps

The accounting cycle

Recording• Source documents

- Invoice- Bank statements

• Record every transaction

Posting• Post to the ledgers• Sub ledgers• General ledger = list

of transactions• Use double-entry

system

Unadjusted TB • Prepare initial trial

balance report• At the end of the

period• Two columns• Must balance

STEP 1 STEP 2 STEP 3

The accounting cycle

Errors & adjustments• Make any

corrections• Adjustments:

- Timing- Tax- Incomplete records

Adjusted TB• Prepare final trial

balance• Two columns• Must balance• Basis for AFS

Financial statements• Use TB to prepare

annual financial statements

• Additional steps once finalised:

- Pre-closing TB- Post-closing TB- Roll-forward

STEP 4 STEP 5 STEP 6

Recording

Posting

Unadjusted TB

CorrectionsAdjustedTB

Financial Statements

Pre & Post TB

Roll-forward

Recap

Trivia time

What is the step in between the unadjusted and adjusted trial balance?Answer:

Corrections and adjusting entries

Key Financial Processes

Processes

• Capturing

• Payments

• Posting

• Reconciliations

• Reporting

• Reconciliations

Daily Weekly Monthly

1

2

3

Treasury

Billing & credit

Procurement

Key processes

4

5

6

Taxation

Accounts receivable

Accounts payable

Key processes

7

8

9

Travel management

Payroll systems

Asset management & safeguarding

Key processes

Benefits

Prevent misappropriation of

funds

Fraud Error

Trivia time

List one of the key business processes that needs to be managed within the finance function?Answer:

Payroll, Tax, Assets, Travel, Procurement, etc.

Typical Transactions

Life cycle of a transaction• Initiation

• Processing

• Reconciliation

• Reporting

1

2

3

Type of business

Industry

Mode of operation

Typical business transactions

Type of businesses

• Sole proprietor

• Partnership

• Joint venture

• Listed entity

Customers

Face to face Online B2B

Types of incomeGoods Vs. Services

Goods Services

Industry• Financial services

• Non-profit

• Education

• Agriculture

• Manufacturing

• Retail

• Beauty

• Entertainment

Transactions• Incurred to make a sale

• Expenditure:

• Nature

• Function

• Monthly running costs

• Variable

• Fixed

True orFalse?

The life cycle of a transaction is initiation, reporting, processing and then reconciliation?Answer:

False

Types of expenses• Salaries

• Audit fees

• Rent and utilities

• Marketing

• Insurance

• Tax

Types of expenses• Bank account

• Fees

• Interest

• Loans

• Interest

• Assets

• Depreciation

In a nutshell

Accounting cycle Key processes Typical

transactions

Trivia time

What did an accountant, Walter Diemar, invent in 1928?

Answer:

Bubblegum!

#shawBK

ChallengeHave you considered starting

your own business? Do you

have a business? Share a few

typical transactions.

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