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Accounting Cycle Basics

The accounting cycle is a six-step process that accountants use to analyze financial transactions, record them in a ledger, prepare adjusting entries and trial balances, and ultimately generate accurate and consistent financial reports. It begins with recording transactions, continues through posting debits and credits, and concludes with producing financial statements that communicate the financial position of a business at a particular point in time.

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31 views1 page

Accounting Cycle Basics

The accounting cycle is a six-step process that accountants use to analyze financial transactions, record them in a ledger, prepare adjusting entries and trial balances, and ultimately generate accurate and consistent financial reports. It begins with recording transactions, continues through posting debits and credits, and concludes with producing financial statements that communicate the financial position of a business at a particular point in time.

Uploaded by

ber ting
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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The accounting cycle

Accounting begins the moment you enter a business transaction—any activity


or event that involves your business’s money—into your company’s ledger.

Recording business transactions this way is part of bookkeeping. And


bookkeeping is the first step of what accountants call the “accounting cycle”: a
process designed to take in raw financial information and spit out accurate
and consistent financial reports.

The accounting cycle has six major steps:

1. Analyze and record transactions (looking over invoices, bank


statements, etc.)
2. Post transactions to the ledger (according to the rules of double-entry
accounting)
3. Prepare an unadjusted trial balance (this involves listing all of your
business’s accounts and figuring out their balances)
4. Prepare adjusting entries at the end of the period
5. Prepare an adjusted trial balance
6. Prepare financial statements

Most of these rules and processes are automated by accounting software, so


we’re going to skip over the gritty details of the accounting cycle and talk
about the end product: financial statements.

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