The Accounting Cycle

In the general point of view, an accounting cycle refers to certain procedures that must be established by every business unit to provide the data to be reported on the financial statements. The accounting process consists of two interrelated parts: the recording phase and the summarizing phase. Although these phases vary in details depending on the nature of the business, the main purpose is just the same – to be able to provide an accurate report containing the firm's condition and the result of its operation. To clearly illustrate the complete accounting cycle of a finance company, let us take as an example Dann & Berns, Inc. The company is engaged in providing business analysis including credit investigation, a thorough study of the company profile, review of the client's financial statements, and providing an overall rating of the clients, whom we will call as subjects in this example. Among Dann & Berns' subjects include big companies who are applying for accreditation as a distributor of another firm; applicant verification for banks and other financial institutions offering various types of loans, as part of their pre-approval requirements; outsourcing companies and other headhunting firms for hire-right purposes; and others from different industries. To be able to provide the necessary services, Dann & Berns is hiring very senior financial professionals for these functions. These professionals are required to have a solid background in finance and accounting as well as the ability to communicate with the top management of different financial institutions. A deep knowledge on financial analysis is highly expected from them. The Operations Department is involved in the main process and is consist of report coordinators, field officers, business analysts, and editors, who are all directly reporting to the vice president. Other departments providing support include marketing, human resources, legal, information technology, accounting and audit. The marketing people are the ones who have direct contact with the subject. They collect and forward the primary documents and other requirements to the operations department through the report coordinators. The report coordinators will then input necessary data for monitoring and assignment of subjects to the business analysts. The editors are responsible in reviewing the work of the business analysts. Their responsibilities include double-checking of the ratings given to the subject, based on their company profile, the result of background checks, outcome of credit investigations made, and the content of their financial statements. Field officers are the ones who do the personal background-checking and other liaison work including but not limited to gathering of pertinent documents from the Securities and Exchange Commission, IRS, Federal Bank and other banks, and other regulatory bodies to authenticate the validity of the papers submitted by the subject. Once the accreditation process is done, the editors will forward the reports back to the report coordinators, who will then issue a list of completed reports per subject to the accounting department for billing purposes. This is the starting point of Dann & Berns' accounting cycle.