Accounting Cycle is 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.
When an Accounting Cycle transaction occurs it is recorded in various books and elements. the order of recording these transaction is called as “ Accounting Cycle ” as the various records are completed one after another in proper sequence every step of record is called the phase of the record is called a phase of accounting cycle.
The nine steps of the Accounting Cycle:
The following steps in the accounting cycle are explained below;
Collecting and analyzing data from transactions and events. “Transactions can include the sale or return of a product, the purchase of supplies for business activities, or any other financial activity”
- General Journal:
The transactions is recorded in the General Journal as a debit or credit. The journal is also known as the “book of original entry”.
The 3rd step in accounting cycle is to Posting entries into the general ledger. In general Ledger we can find a summary of all the business’s accounts.
- Un-adjusted Trial Balance:
We make an un-adjusted trial balance to verify the sum of Debit is equal to the sum of credit
- Adjusting entries appropriately:
The 5th step in accounting cycle process is to perform Adjusting entries , adjusting entries are made for accured and deffered items, the entries are journalized and posted into the T accounts in the ledger.
- Preparing an adjusted trial balance.
A new trial balance is prepared after making adjusting entries. This is called adjusted trial balance
- Organizing the accounts into the financial statements:
After we made adjusted trial balance we proceed to next step in Accounting Cycle and prepare financial statement that included profit and loss a/c & balance Sheet.
- Closing the books:
After making financial statement we close the book for expense and revenue accounts, and start the entire accounting circle again with 0 balance.
- Preparing a post-closing trial balance to check the accounts.
The 9th step in cycle of accounting is to prepare post-closing trial balance. This trial balance is prepared when we close out books of account
Also known as “bookkeeping cycle”.