Four Main Business Cycles

Business Cycles - Year End

At the beginning of a new year, accountants are preparing for the approaching tax season. It is the beginning of that time of year, when companies are closing and cleaning up their books.

It is the time of year when important decisions must be made to ultimately determine the success of their business. These events most commonly take place between the months of January and April, the busiest time of year for both accountants and financial software support representatives.

Although it is an accountant's job to balance their books and decide what needs to be posted, deleted, adjusted or voided, financial software support representatives must be ready to point their customers in the right direction.

To help organize year end procedure suggestions, this course is organized into four main business cycles that are typical to manufacturing environments:

o Sales and Collection Cycle

o Acquisition and Payment Cycle

o Payroll and Personnel Cycle

o Manufacturing and Inventory Cycle

Each business cycle is made up of a set of suggested prerequisites, activities, and housekeeping procedures that when executed, can optimize a company's year end close procedures.

Every company’s period end close and housekeeping procedures include action items unique to their business practices and operations. This course should be used as a starting point to assist you in developing procedures for your company. It should not be interpreted as the sole listing of effective methods.

Sales and Collection Cycle

The Sales and Collection Cycle is made up of all processes which ultimately lead to a company's total revenue intake. Because this is such an important cycle in a manufacturing company's day-to-day business practices, several items must be reviewed before the fiscal year is marked as closed.

In order to verify all project milestones, shipments, credit memos, invoices, adjustments, and cash receipts for the current fiscal year were properly accounted for, use the following prerequisites, activities, and mandatory records in the order listed.

Prerequisites

For each period, verify the following:

o All Pending Shipments have been recorded and flagged as Shipped.

o All Invoices have been generated for Project Milestones.

o All Invoices for shipments have been recorded and posted.

o Any Miscellaneous Invoices have been recorded and posted.

o All Credit Memos for open return material authorizations (RMAs) have been processed.

o All Cash Receipts have been recorded and posted.

o All Adjustments have been recorded. If they have not been recorded, execute any necessary write-offs.

Activities

o Process Customer Statements.

This is an optional activity that is only meant to be completed if customers request year end statements.

o Reconcile the AR Clearing account.

The AR Clearing account is used as a middle, or pending, account between Inventory/WIP and Cost of Sales (COS). If used, only one AR Clearing account, per book, can be identified in your company. Once defined, this account is automatically used to track products that have been shipped but not invoiced. At the time of shipment, costs post to this account instead of moving directly through to the COS accounts. At the time of invoice, costs move from the AR Clearing account to the COS accounts. (See Mandatory Reports – Shipped Not Invoiced for more info on reconciling this account).

o Reconcile Accounts Receivable accounts.

o Reconcile Advanced Billing/Deposit accounts.

Mandatory Records

Generate these Mandatory Record Reports after you complete all prerequisite activity and before