Methods of Automating the Accounting Cycle

First-grade business students often learn about the accounting cycle. This is an 8-step process that defines how companies can manage their financial records. It produces timely and accurate reports and mitigates the risk of financial fraud.  

The accounting cycle has alternative names such as "Record to Report" or "R2R Processes". This is a suitable way to explain accounting as a business function.   

Although there are only eight steps, they require hundreds of repetitive manual tasks. They are:

1. Recognize transactions 

The accounting cycle starts with the recognition of financially significant commercial transactions. They involve the gathering or distribution of money. Working with personnel from several departments to gather this information may necessitate the accounting team accessing multiple systems.  

Vendor billing information, employee expenditure reports, bank statements, are all examples of relevant data in various formats.

2. Make notes of transactions in the journal

The next step is to enter these transactions into the company's accounting system. Journal entries are usually handwritten.  

Most companies now, on the other hand, employ a digital diary, which can be as simple as a spreadsheet. The amount of labor necessary to record journal entries has not changed.  

One needs manual input to enter information into the accounting system. This constitutes a difficult and time-consuming operation that raises the risk of accounting errors.

3. Create a general ledger entry for each transaction  

After approval, you can post the journal entry to the general ledger. You can also manually do it by having accounting employees individually posting each record.  

When processing hundreds of operations, this lengthy process comprises entry-level accounting systems. This is a waste of time.

4. Create an unadjusted trial balance 

Toward the end of the accounting period, the finance team runs a trial balance. By following this process, you can ensure that you record all transactions correctly and balance the account.  

Many accounting systems make this difficult by requiring companies to use long and complex account codes. This happens while tracking expenses, sales, and other transactions by department, location, or another category.

5. Check the worksheet 

Your accounting team must determine the problem's cause. This happens when the account is out of balance (as is often the case with some companies). 

This normally occurs at the end of the month, and it is necessary to do the task early. This is not as simple as it appears. The main task of accounting is to ensure accuracy, and manually verifying thousands of accounts can be time-consuming. 

6. Enter the adjustment 

You may also need to create adjustment entries to account for non-cash costs. They include accrual accounting and depreciation. This is in addition to correcting errors. 

You can collect these entries on a set schedule. For example, a company may pay an annual premium at the beginning of the year.  

Later, it incurs costs evenly over the next 12 months. Spreadsheets track these schedules. There is a significant risk of data entry and calculation errors.

7. Preparation of the annual report 

Once you make the adjustments and adjust the account balance, you can finalize the annual financial statements. Companies may repeat multiple reports, such as requests for small changes before the numbers are final. 

Accounting software with inflexible reporting options makes it difficult to format financial reports to meet the needs of everyone.

8. Closes the accounting period

The final step is to close the book. Best-in-class companies can do this within 3-4 days of the deadline. More than half of the organizations need more than four days to complete a book. The American Productivity and Quality Center reveals this.  

Organizations with limited automation need up to 6 days or more to complete it.

The accounting cycle is automated by NetSuite.

NetSuite prepares you to move from entry-level accounting software and spreadsheets. It also puts an end-to-end automated accounting solution removing the time and effort required. It provides a complete accounting solution for organizations that are ready to minimize routine accounting tasks.    

Automating the accounting cycle with Oracle NetSuite reduces time and improves accounting staff efficiency.  

NetSuite has the following features:

• Accounting employees have visibility into every business transaction thanks to a consolidated library of organizational and financial data.

• Certain rules form the basis for transaction matching and auto-posting journal entries. They reduce the requirement for manual data entry and thereby reduce the likelihood of errors.  

• A flexible reporting tool that facilitates the development of custom layouts that meet the needs of different stakeholders.  

To learn more about NetSuite, visit Jobin & Jismi.