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".


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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.

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  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 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 >>
  3. 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 >>
  4. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  5. What is a profit and loss (P&L) statement and why do companies publish them?

    A profit and loss (P&L) statement, or balance sheet, is essentially a snapshot of a company's financial activity for ... Read Full Answer >>
  6. How do dividends affect the balance sheet?

    Dividends paid in cash affect a company's balance sheet by decreasing the company's cash account on the asset side and decreasing ... Read Full Answer >>

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