Accounting cycle

An accounting cycle is the sequence in which financial data is recorded until it becomes the part of financial statements at the end of the financial period. In other words it’s a sequence of steps to record financial information in a precise manner. For example accounting cycle is the preparation of General journal, posting entries into ledger accounts, Preparation of trial balance, making adjusting entries and at end of financial period presentation of financial statements (e.g. Income statement, Balance sheet, Cash flow statement etc)

Accounting cycle includes these major steps:

  • Identifying the financial transactions or events 
  • Preparing the documents for these transaction such as sales invoice 
  • Journalizing the transactions 
  • Posting transactions from journal to ledger account 
  • Preparing trial balance to check the accuracy of accounts 
  • Adjusting the entries if there is mistake or omission in recording the transactions in any book of accounts 
  • Preparing financial statements (Income statement, Balance sheet, Cash flow statement etc) 
  • Posting closing entries to ledger account 
  • Preparing "after closing trial balance" to check the debit balance is equal to credit balance