The accounting cycle is a standard process that helps businesses keep track of their financial activities by documenting, sorting, and analyzing all transactions to ensure that each one is accounted for. It is a multistep process that begins with a transaction and ends when a company closes its books. The accounting cycle is a comprehensive accounting process that begins and ends in an accounting period. It involves eight steps that ensure the proper recording and reporting of financial transactions. The steps of the accounting cycle are:
- Identifying transactions
- Recording transactions in a journal
- Posting the transactions
- Preparing the unadjusted trial balance
- Analyzing the worksheet
- Adjusting journal entry discrepancies
- Preparing a financial statement
- Closing the books
The accounting cycle is a methodical set of rules that can help ensure the accuracy and conformity of financial statements. Computerized accounting systems and the uniform process of the accounting cycle have helped to reduce mathematical errors. Today, most software fully automates the accounting cycle, which results in less human effort and errors associated with manual processing. The accounting cycle is used comprehensively through one full reporting period. Thus, staying organized throughout the process’s time frame can be a key element that helps to maintain overall efficiency. Accounting cycle periods will vary by reporting needs. Most companies seek to analyze their performance on a monthly basis, though some may focus more heavily on quarterly or annual results.
