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The Accounting Cycle | Tutorial

The Accounting Cycle | Tutorial

Understand how financial transactions move from events to statements through the accounting cycle.

Accounting cycle concept
From transactions to closing entries: the accounting cycle visualized.
Key Steps in the Accounting Cycle
  • Record transactions as journal entries
  • Post to the general ledger
  • Prepare a trial balance
  • Make adjustments and prepare adjusted trial balance
  • Generate financial statements
  • Close temporary accounts

What Is the Accounting Cycle?

The accounting cycle is the systematic process a business follows to record, process, and report its financial transactions over a specific period. It ensures accuracy, consistency, and completeness in financial reporting.

Steps of the Accounting Cycle

  1. Record Transactions: Identify financial events (sales, expenses, purchases, etc.).
  2. Journal Entries: Debit and credit entries recorded in chronological order.
  3. Post to Ledger: Move journal entries into account-specific ledgers.
  4. Trial Balance: List all ledger balances to check that total debits = total credits.
  5. Worksheet & Adjustments: Identify and record adjusting entries (e.g. accruals, deferrals).
  6. Adjusted Trial Balance: Prepare new trial balance after adjustments.
  7. Financial Statements: Prepare income statement, balance sheet, cash flow statement.
  8. Closing Entries: Reset temporary accounts (revenues, expenses) to zero for next period.

Why It Matters

Following the accounting cycle helps ensure that financial statements are accurate, compliant, and comparable over time. It helps detect errors, maintain audit trails, and facilitate decision-making.

Related Articles

© Earning Money Online — Educational content only. Accounting cycles may vary by jurisdiction and entity type.

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