Full cycle accounting definition

What is Full Cycle Accounting?

Full cycle accounting refers to the complete set of activities undertaken by an accounting department to produce financial statements for a reporting period. This is known as the accounting cycle, and involves the following set of activities:

  1. Record transactions. The accounting staff records a variety of ongoing transactions in the accounting system, such as supplier invoices, billings to customers, and payroll payments to employees.

  2. Review the trial balance. Print the preliminary trial balance, which reports the ending balances in all accounts used to store business transactions.

  3. Prepare adjusting entries. Prepare any adjusting entries needed to bring the accounts into compliance with the applicable accounting framework, such as Generally Accepted Accounting Principles.

  4. Prepare financial statements. Print the standard set of financial statements, which are the income statement, balance sheet, and statement of cash flows.

  5. Close the books. Set flags in the accounting software to roll the system forward to the next accounting period.

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Examples of Full Cycle Accounting

Full cycle accounting can also refer to the complete set of transactions associated with a specific business activity. Here are several examples of full cycle accounting:

  • Sales. A company buys goods, stores them, processes customer orders, picks items from stock, sells them on credit, and collects payment from customers. These activities represent the full cycle of activities for selling to customers.

  • Purchasing. Someone submits a requisition for goods, the purchasing department issues a purchase order, the receiving department receives the goods, and the accounts payable staff processes payment to the supplier. These activities represent the full cycle of activities for acquiring goods.

  • Payroll. Employees submit their time cards or time sheets to the payroll staff, which reviews them for errors, obtains supervisor approvals, aggregates the information into gross pay, incorporates all required tax and other deductions to arrive at net pay, and issues payments to employees. These activities represent the full cycle of activities for paying employees.

Full cycle accounting can also refer to the standard business cycle of a company. For example, if a business normally takes three months to produce its own goods, hold them in stock, sell them to customers, and receive payment from them, the full cycle of its operations spans three months.

Full Cycle Accounting by Position

The "full cycle" concept can also be applied to accounting jobs, where it means that someone is responsible for all aspects of a certain position. For example, a full cycle accounts payable position implies that a person in that position will be responsible for all accounts payable tasks, such as three-way matching, expense report examination, taking early payment discounts, paying suppliers, and so forth. The term may also be applied to the bookkeeper, billing clerk, and payroll clerk positions.