Accounts Cycle

Overview

Below is a comprehensive, business‑focused explanation of the Accounts Cycle, written for practical understanding and day‑to‑day business usage within Dafater.

1. Overview of the Accounts Cycle and Its Importance

The Accounts Cycle is the backbone of a company’s financial management. It captures, records, classifies, and summarizes all financial transactions of a business within a defined period. Every payment received, expense paid, adjustment made, or transfer between accounts ultimately flows through this cycle.

Why the Accounts Cycle Is Important

Ensures accurate financial records
Supports financial statements such as Profit & Loss and Balance Sheet
Enables regulatory compliance and audits
Provides management visibility into cash flow, profitability, and cost control
Acts as the final accounting layer for all business activities

In Dafater, the Accounts Cycle ensures that every business activity is translated into reliable accounting records.

2. Step‑by‑Step Business Process Flow

Below is a typical Accounts Cycle flow from a business perspective:

Step 1: Define the Accounting Structure

The business defines: - Company details - Chart of Accounts - Cost Centers - Fiscal Year

This establishes the financial framework for recording transactions.

Step 2: Record Financial Transactions

Transactions arise from daily business activities, such as: - Receiving money from customers - Paying suppliers or employees - Transferring funds between bank accounts - Making adjustments or corrections

These are recorded using Payment Entries or Journal Entries.

Step 3: Automatic Ledger Posting

Each approved transaction generates GL Entries: - Debit and Credit postings - Linked to specific Accounts and Cost Centers - Recorded within the active Fiscal Year

This ensures accounting accuracy and traceability.

Step 4: Monitor and Review Accounts

Finance teams review: - Account balances - Cost center performance - Period‑wise financial movements

Adjustments are made through Journal Entries if required.

Step 5: Period Closing and Reporting

At month‑end or year‑end: - Accounts are reviewed and finalized - Financial reports are generated - The Fiscal Year may be closed once approved

3. Key Documents Involved and Their Role

Company

Represents the legal business entity
All accounting activity belongs to a specific company

Fiscal Year

Defines the accounting period (e.g., April–March)
Controls when transactions can be posted
Used for period‑based financial reporting

Account

Represents financial categories such as:
- Cash
- Bank
- Expenses
- Income
- Assets
- Liabilities
Forms the Chart of Accounts, the foundation of accounting

Cost Center

Tracks expenses and income by department, branch, or project
Helps management analyze profitability and cost control

Payment Entry

Used to record actual money movement
Examples:
- Customer payment received
- Supplier payment made
- Bank transfer
Directly impacts cash and bank balances

Journal Entry

Used for non‑cash or adjustment transactions
Examples:
- Accruals
- Depreciation
- Expense corrections
- Inter‑account transfers

GL Entry (General Ledger Entry)

The final accounting record
Automatically created from Payment Entries and Journal Entries
Shows debit and credit impact on each account

4. Business Prerequisites and Setup Requirements

Before using the Accounts Cycle effectively, the business must ensure:

Company details are correctly defined
Fiscal Year is created and active
Chart of Accounts is structured correctly
Cost Centers reflect the business structure
Opening balances are recorded (if applicable)
Roles and approval workflows are defined for financial control

These setups ensure consistent and compliant accounting operations.

5. Common Business Scenarios and Use Cases

Scenario 1: Receiving Customer Payment

A customer pays via bank transfer
A Payment Entry is created
Bank account is debited, customer account is credited
GL Entries are automatically generated

Scenario 2: Paying Office Expenses

Office rent or utility bill is paid
Payment Entry records the cash or bank outflow
Expense account and cost center are updated

Scenario 3: Month‑End Adjustment

Salary expense is recorded before payment
Journal Entry is created to recognize the expense
Ensures accurate monthly profit reporting

Scenario 4: Internal Fund Transfer

Money moved from one bank account to another
Journal Entry or Payment Entry records both sides
No impact on overall cash, only account movement

6. Best Practices and Important Considerations

Always select the correct account and cost center
Use Payment Entries for real cash movements
Use Journal Entries only for adjustments and non‑cash transactions
Avoid back‑dated entries without proper review
Regularly reconcile bank and cash accounts
Review GL Entries periodically for accuracy
Close fiscal periods after proper validation

Strong discipline in the Accounts Cycle prevents errors and supports decision‑making.

7. How Documents Flow Through the Cycle

Business Transaction → Payment Entry / Journal Entry → GL Entries → Account Balances → Financial Reports

Example: - Supplier payment
→ Payment Entry
→ GL Entries (Expense + Bank)
→ Updated expense totals and cash balance
→ Reflected in Profit & Loss and Balance Sheet

This flow ensures that every business activity is traceable from transaction to financial statement.

Summary

The Accounts Cycle in Dafater is a structured, end‑to‑end process that converts business activities into meaningful financial data. By properly managing Accounts, Cost Centers, Payment Entries, Journal Entries, and Fiscal Years, businesses gain full control over their finances, improve transparency, and ensure long‑term financial stability.

This cycle is not just about compliance—it is a critical tool for financial insight, planning, and growth.

This document describes the accounts cycle process and the related document types.

Journal Entry
Payment Entry
GL Entry
Account
- Heads (or groups) against which Accounting Entries are made and balances are maintained.
Cost Center
- Track separate Income and Expense for product verticals or divisions.
Fiscal Year
- Represents a Financial Year. All accounting entries and other major transactions are tracked against the Fiscal Year.
Company
- Legal Entity / Subsidiary with a separate Chart of Accounts belonging to the Organization.

Process Flow

The typical flow for this cycle is:

Set up Company and Chart of Accounts
Configure Cost Centers
Set Fiscal Year periods
Create Journal Entries for manual accounting
Create Payment Entries for payments and receipts
View GL Entries for all accounting transactions