The accounting cycle begins with the analysis of transactions recorded on source documents such as invoices and checks; it ends with the completion of a post-closing trial balance. This cycle consists of the following steps: 1. Analyze and journalize transactions.
2. Post the journal entries to the general ledger accounts. 3. Prepare a trial balance.
4. Journalize and post the adjusting entries.
5. Prepare an adjusted trial balance.
6. Prepare financial statements.
7. Journalize and post the closing entries.
8. Prepare a post-closing trial balance.
Steps one and two occur as often as needed during an accounting period. Steps three, four, five, and six occur at the end of each accounting period. Steps seven and eight usually occur only at the end of each fiscal year, but these steps may be completed at the end of each accounting period if the company chooses to do so. If a work sheet is used, steps three, four, and five are initially recorded on the work sheet, which makes it possible to complete step six more quickly, but all adjusting entries on the work sheet must be journalized and posted before closing entries are made.
Definition of 'Accounting Cycle'
The name given to the collective process of recording and processing the accounting events of a company. The series of steps begin when a transaction occurs and end with its inclusion in the financial statements. The nine steps of the accounting cycle are:
1. Collecting and analyzing data from transactions and events. 2. Putting transactions into the general journal.
3. Posting entries to the general ledger.
4. Preparing an unadjusted trial balance.
5. Adjusting entries appropriately.
6. Preparing an adjusted trial balance.
7. Organizing the accounts into the financial statements. 8. Closing the books.