Bianca, this QuickBooks thing is awesome. You're going to be done in no time. At this rate, I'll have those financial reports for the bank by dinner. Whoa, there is a process to things. You can't rush perfection. Okay? How about you go source some new hardware for your big contract? That's a good idea. Now that I have Lou checking out lawnmowers, let's talk a bit more about the accounting cycle. I know we talked a little bit about this in an earlier lesson when we talked about the account equation and entering transactions into your journal and ledger. But that's just really the first part. As a new bookkeeper, the accounting cycle is also helpful because it tells you what your role is during each step. But don't take my word for it, let's hear from an expert as they discuss the accounting cycle and its importance for new bookkeepers. The accounting cycle is made up of eight major steps and this can be massaged and modified for any individual situation. The first thing you're going to do is identify the transactions that need to be entered and that could be a sale or a refund or a bill from a supplier, whatever. Then the next step is to record those into your software. I mean, if you were doing it old school on ledger paper fine, you'll be doing it there in journal entries, but we're assuming you're using software and you'd record those entries in some kind of transaction, whether it's a general journal entry or in QuickBooks, you might want to use an invoice for a sale or a sales receipt. For purchases, you might do purchase orders or bills or what have you, so that would be the next step. Once you've posted it, the third step is to view what you've done in the general ledger, which is the entire list of accounts on the chart of accounts and the transactions that affect them one by one. Eventually at the end of your reporting period, then let's just assume that it's a year, you'll always have a trial balance as you go along, but you'll have at the end of the year for that, let's say it's calendar year January to December entries that effect that trial balance and that's called an unadjusted trial balance, and per the accounting equation, debits equal credits in the trial balance. Then what you would do, and this is more of an accountant versus a bookkeeper. They go through the trial balance and identify what transactions have to be made as adjusting transactions. They create worksheets for account by account, which whether it's depreciation or accruals or what have you, they'll do that. Then the adjusting journal entries are made from that worksheet that produces financial statements. Generally, that's the profit and loss or the income statement, as well as the balance sheet and the statement of changes in financial position and cash-flow statement as well. Lastly, you don't want somebody coming along and making changes to the period that you're hoping to finalize with those financial statements. So you would close the year, you would close the period and prevent anyone from making changes or additions or deletions to the period that you just worked on. QuickBooks has a closing date and a closing date password feature, which is terrific it keeps clients from getting themselves in trouble. In certain softwares that are not QuickBooks, there's actually an entry that closes out the profit and loss and dumps everything into retained earnings. QuickBooks doesn't require that. That's pretty much the accounting cycle. The accounting cycle is basically a checklist, and checklists are very important for doing all kinds of professional work. The thing about checklists is this, they ensure that basic critical stuff is not overlooked. While at the same time ensuring that people talk and coordinate together around common shared aims. This may not seem like something you really need to do in a simple task or simple group of tasks, but when you have some type of complexity or a problem that arises in the middle of surgery or in the middle of doing something where you're maintaining an aircraft, it's really easy for people to forget what they're supposed to be doing, the basic stuff, so checklists are a great help. When there are complications, people tend to forget what they're supposed to do because they're busy putting out fires. So as far as bookkeeping and accounting is concerned, you might have fires you have to put out with your clients. But as long as you keep the list of steps that you have to follow, whether it's day by day, week by week, month by month, year by year, then you will never let things fall off the rails because you forgot to do the basic stuff. So that's why the accounting cycle is so important, it is at the very base of it, a checklist.
