Accounting Cycle


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".


Loading the player...

BREAKING DOWN '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.

  1. Accounting Standards Executive ...

    The former senior technical organization within the American ...
  2. Accounting

    The systematic and comprehensive recording of financial transactions ...
  3. General Ledger

    A company's main accounting records. A general ledger is a complete ...
  4. Income Statement

    A financial statement that measures a company's financial performance ...
  5. Transaction

    1. An agreement between a buyer and a seller to exchange goods, ...
  6. Liability

    A company's legal debts or obligations that arise during the ...
Related Articles
  1. Economics

    Understanding the Accounting Cycle

    An accounting cycle consists of the traditional procedures performed to record business events and transactions in a company’s accounting records.
  2. Retirement

    Footnotes: Early Warning Signs For Investors

    These documents hold very important information, but reading them takes skill.
  3. Bonds & Fixed Income

    Accounting Rules Could Roil The Markets

    FAS 142 is an accounting rule that changes the way companies treat goodwill. Be aware of the impact it has on reported earnings to avoid making bad investment decisions.
  4. Personal Finance

    A Look At Accounting Careers

    More than just crunching numbers, this career blends detective work with trouble shooting.
  5. Investing

    Off-Balance-Sheet Entities: An Introduction

    The theory and practice of these entities varies greatly. Investors need to learn what they're getting into.
  6. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  7. Investing

    What a Family Tradition Taught Me About Investing

    We share some lessons from friends and family on saving money and planning for retirement.
  8. Professionals

    4 Must Watch Films and Documentaries for Accountants

    Learn how these must-watch movies for accountants teach about the importance of ethics in a world driven by greed and financial power.
  9. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  10. Markets

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  1. Why is an accounting cycle necessary?

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

    All business decisions are based on data and numbers. If a company were to skip steps in the accounting cycle, it would begin ... Read Full Answer >>
  3. What are the most important steps in the accounting cycle?

    All eight steps in the accounting cycle are important, since each step is necessary to complete the full accounting cycle ... Read Full Answer >>
  4. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  5. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  6. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center