Business and Personal Finance: The Accounting Cycle

Keeping Track of Transactions – The Accounting Cycle

You now know about the bulk of what goes into the accounting cycle (the process that starts with a transaction and ends with financial statements). In fact, the entire accounting cycle can be summed up in eight basic steps.

1. Write up transactions in the daily journals.
2. Post journal entries to the appropriate ledgers.
3. Prepare a trial balance of all general ledger accounts.
4. Create your working trial balance, complete with adjusting entries.
5. Enter those adjusting entries into the general journal and post them to the general ledger.
6. Prepare your financial statements.
7. Close out your temporary accounts.
8. Create a postclosing trial balance.

The five new steps have to do with end-of-period wrap-up. Those steps are designed to give you financial statements to analyze and a clean accounting slate to go forward. Then the accounting cycle begins all over.