What is Accounting Cycle

The accounting cycle is a series of steps by which the company initially identifies, analyzes, records information for every accounting event and convert it to financial statements. The steps of the accounting cycle begin when a financial transaction occurs and ends when you prepare financial statements. Here are all most all the steps that a company follow in it’s accounting cycle:

  • Analyze each business transaction.
  • Post Journal entries of financial transactions.
  • Post transactions to the respective ledger accounts by using a double-entry bookkeeping system.
  • Prepare a trial balance of the general ledger.
  • Analyze general ledger entries.
  • Prepare a trial balance.
  • Post adjusting entries.
  • Prepare an adjusted trial balance.
  • Prepare income statements, balance sheets, and statements of cash flows.
  • Post-closing entries.

Analyze and Post a transaction

In the Accounting Cycle process, a transaction with economic impact has been identified in an organization and then transaction recorded in the books of accounts by following the double-entry bookkeeping system. All transactions with economic impact should be recorded in one place.

Prepare journal entry and Post to the general ledger accounts

Based on the transactions with economic impact, journal entries are passed to the respective accounts called general ledgers where similar expenses are recorded at one place to summarize at a later point of time.

Prepare a trial balance

Trial balance in a accounting cycle play a major role as it will serve two purpose;

  • It will check the equality of debit and credit balanced of the T Accounts.
  • It’s the starting point in the preparation of financial statements.

Journal and post adjusting entries

What is Accounting Cycle

While preparing financial statements from a trial balance, there can be situations where the figures of the account have to be adjusted or certain figures found to be not recorded during an audit. The updating processes of these events are called adjusting journal entries. For example, revenue may have earned but not yet recorded or income tax calculated but not paid during the financial year.

Prepare the financial statements

As per the rules and regulations of different countries, the financial statement has to be prepared from the adjusted trial balance. Financial Statement should consist of followings;

So the input of the process is transaction and the output is financial statement.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.