Money in, money out, money in, money out… so goes the month. You go into your QBO, add these transactions to the file, check out your financial statements, end of story, right?
Not quite.
More happens behind the scenes than what shows on your QBO dashboard. Back in the day when actual “books” were used, this cycle would have happened manually on a monthly basis. Now, with the advantage of software, the cycle happens automatically. But it still can be cool to know the journey a transaction takes before it hits your financial statements. Let’s get started.
- You can’t have business books without transactions, making this number one in the bookkeeping cycle.
- Those transactions have to be recorded somewhere. This type of books used to be (well, they still are) called the Journals. It is a list of all the transactions that happened in a period of time.
- A mess of transactions won’t be giving you any information so to organize this better, transactions are put into a General Ledger based on specific information (someone paid for a service in cash, so this would be recorded).
- Bookkeepers love to have everything in balance, so the next set of books are the trial balance. In these books, every transaction and which accounts they affect must be accounted for and everything must come to a balance at the end of the period of time.
- Financial statements, or a clear picture of the business’s health, are the end result of the cycle, but they aren’t the last step in this journey.
- Finally, we reach the closing entries. It is often forgotten by many, but it still is important. This step closes accounts such as distributions and contributions and allows the next year to start at zero.
Luckily, most of this is automated in QBO, meaning for the most part, the transactions just need to be categorized. But if you’re curious how many transactions happen every month or you want to make sure everything balances in your books, check out the “For my accountant” section on the Reports tab to find these different ways of looking at your business.
What are you curious to find out about your business’s background?
