Different Types of Transaction Cycles

The transaction cycles are sets or transactions in business which are interconnected to each other. When the accountants in an accounting firm Johor Bahru are doing accounting tasks, they will aggregate most of the business transactions into a few transaction cycles, which are the financing cycle, payroll cycle, expenditure cycle and revenue cycle according to their nature. Below are the details of these cycles:

Financing cycle

In this cycle, the company will issue debt instrument to its lenders. Then, they will pay for the debt and the associated interest. Besides, it may choose to issue equity shares to the investors and pay dividend to them periodically when the company made profits. The transactions in this cycle can be more diverse when compared to other cycles, and the sum of money involved in it is a lot larger (Also see How Can Startups Raise Their Capital?).

Payroll cycle

The company will record the employee’s working hours, confirm the overtime they have worked, calculate gross salary, minus the amount with unpaid leave, if any. After completing these steps, the company will make the payroll payment and issue the pay slips so the employees receive the calculation breakdown.

Expenditure cycle

Some people would call the expenditure cycle as the purchasing cycle. When the company wants to order some goods from its supplier, it will issue a purchase order. After receiving the goods, the accountant will record an accounts payable using double entry accounting and eventually pay the supplier before the due date. In this cycle, there are some ancillary events, for example, the company may choose to use petty cash if the amount associated with the purchase is small.

Revenue cycle

The other name for the revenue cycle is the sales cycle. When a client orders goods from a company, the company will examine the creditworthiness of that order (Also see An Overview of Receivable Turnover). Then, it will send the goods or provide the services to the client before issuing an invoice and collecting the payment from the client.

The accountants play a crucial role in designing a suitable forms, procedures and controls for every transaction cycle mentioned above. This is for the company to minimise the chances of occurance of fraud (Also see How to Ensure an Efficient Internal Audit?) and to make sure that the company has processed all transactions in a consistent and reliable way.