All eight steps in the accounting cycle are important, since each step is necessary to complete the full accounting cycle accurately. The eight steps in the accounting cycle, in order, are: transactions, journal entries, posting, trial balance, worksheet, adjusting journal entries, financial statements and closing of the books.
The first step in the accounting cycle is the financial transaction, which includes any transaction involving the use or exchange of a company's assets. The second step in the cycle is the creation of journal entries, where the financial transactions are listed in the appropriate journal in chronological order. The transaction recorded as a journal entry is then posted to the account that it impacts as the third step in the cycle.
At the end of the accounting period, a trial balance is calculated as the fourth step in the accounting cycle. A trial balance tells a company if its books are in balance. The fifth step in the cycle is the creation of a worksheet, which a company uses to make any adjusting entries needed to balance the books created during the fourth step.
The sixth step in the cycle is to post the adjusting journal entries. In this step, the adjusting entries tracked in a company's worksheet are posted to the correct accounts. After the company makes all adjusting entries, it then generates its financial statements in the seventh step. Finally, a company ends the accounting cycle in the eighth step by closing its books, effectively starting the accounting cycle over again with a zero balance.