Accounting cycle, balance between receivables and payments

Accounting cycle revolves around revenues, expenses, receivables and payments. It starts with capital investments, revenues and later administrative operational expenses to keep the cycle going of generating income and manage expenses and end up into profits. 

Accounting is different for businesses and individuals which is at macro level or micro level, for businesses it starts with revenue collection and balancing with expenses and recording profit or loss similarly for individuals as well. 

Purpose of this article is not to revise the accounting cycle and accounting treatments of transactions rather highlight loopholes where businesses or any individual gets stuck. When there’s mismatch of liquid assets which are receivables or inventories and expenses are high for example high-end advertisements or high administrative costs for small companies there comes a gap issue. 

If organizations pay salaries on time with revenue collections they won’t stuck in any issue or won’t become sinking ship, salaries are utmost and important expense anywhere because it helps in retaining employees and also nurture their health well-being plus save from various government penalties. 

Issue is the small organizations they don’t pay on time resulting in heavy operational costs or huge loans and then seek for equity investments. All stable and well-established organizations do their budget calculations before hiring and when hiring employees they do all efforts to keep employees by paying them on time and incur all legitimate expenses for their well being which includes health, transport, accommodation, and all kind of relevant allowances or facilities.  

Being an entrepreneur is challenging, it’s not an easy task or as an accountant, everything is a number either asset or liability but if you see as an entrepreneur or manager, everything is either opportunity or risk. A good businessman would take advantage of opportunity and avail in the right direction and a risk-averse would manager would try to minimize risk by calculating return on investments. 

It’s all about how managers or investors look at the balance sheet and income statements, either everything is an expense or an opportunity. Being a good manager is not an easy job either it can nurture a team and develop a good accounting cycle or just look at everything as numbers. 

A business decision is not always easy, it comes with lot’s of analysis and observations of facts and figures which could either be right for business or could be a huge mistake.