Accounting Cycle

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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.
  9. Preparing a post-closing trial balance to check the accounts.

Also known as "bookkeeping cycle".

INVESTOPEDIA EXPLAINS 'Accounting Cycle'

The accounting cycle is a methodical set of rules to ensure the accuracy and conformity of financial statements. Computerized accounting systems have helped to greatly reduce mathematical errors in the accounting process, but the uniform process of the accounting cycle also helps reduce mistakes.

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    The accounting cycle creates a procedure and benchmark for each major step in a proper accounting process. When a company ... Read Full Answer >>
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  3. What would happen if you tried to skip steps in the accounting cycle?

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    Transfer pricing involves the trade of goods or services between two related companies, and both can come out the winner. ... Read Full Answer >>
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