Accounting Cycle Steps & Examples What is Accounting Cycle? Video & Lesson Transcript

Its format is similar to that of an unadjusted or adjusted trial balance. However, it lists only permanent accounts because all temporary accounts get closed in step-8 above. The post-closing trial balance serves as the base or opening trial balance for the next period’s accounting cycle. After the company makes all adjusting entries, it then generates its financial statements in the seventh step.

  • To journalize is to record a transaction in the company’s general journal.
  • Each transaction, once collected, is recorded in the general journal in the order which it occurred.
  • Every individual company will usually need to modify the eight-step accounting cycle in certain ways in order to fit with their company’s business model and accounting procedures.
  • Many of these steps are often automated through accounting software and technology programs.
  • In order to perform her work, Cynthia follows a series of steps for the collection, processing and reporting of financial transactions called the accounting cycle.

Here, entries of a particular period(from the ledger) are summarized. This is done to verify that the sum of debits is equal to the sum of the credits. These are fixed by making adjustments in the unadjusted trial balance. The main difference between the accounting cycle and the budget cycle is the accounting cycle compiles and evaluates transactions after they have occurred. The budget cycle is an estimation of revenue and expenses over a specified period of time in the future and has not yet occurred.

What Are Some of the Advantages and Disadvantages of Accounting?

Cash accounting requires transactions to be recorded when cash is either received or paid. Double-entry bookkeeping calls for recording two entries with each transaction in order to manage a thoroughly developed balance sheet along with an income statement and cash flow statement. This final trial balance is generally referred to as post-closing trial balance.

  • The choice between accrual and cash accounting will dictate when transactions are officially recorded.
  • The toy store owner must ensure that all the debits and credits in the general ledger are balanced.
  • The only accounts with balances that are carried forward to the next accounting period are the asset, liability and owners’ equity accounts.
  • After journalizing, the information is posted to General Ledger accounts.

Thus, staying organized throughout the process’s time frame can be a key element that helps to maintain overall efficiency. Most companies seek to analyze their performance on a monthly basis, though some may focus more heavily on quarterly or annual results. After the transactions are posted in the general journal, they will subsequently be posted in the general ledger.


The total of debit column and credit column of trial balance must be the same – remember the rule from accounting equation that for every debit entry there must be a corresponding credit entry. Posting is the process of forwarding journal entries from journal book to ledger book, commonly known as general ledger. After Journalizing, the accounting transactions are posted to their relevant ledger accounts. This step classifies and groups all entries relating to a particular account at one place. For example, all entries relating to sales are recorded in sales account.

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A budget cycle can use past accounting statements to help forecast revenues and expenses. Like any process, the accounting process steps begin with the acquiring of information to then be analyzed and ends with checking one’s work to ensure accuracy. The accounting cycle process is usually performed over a month, or a specified accounting period. Information obtained in one of the accounting process steps will be used in the successive accounting cycle steps. With double-entry accounting, each transaction has a debit and a credit equal to each other, common in business-to-business transactions. It gives a report of balances but does not require multiple entries.

Step Three: Post to General Ledger

The owner ensures that the revenue and expense accounts are indeed closed and that the accounts which are allowed to carry balances have equal amounts of debits and credits. Once all the nine steps are performed and the financial statements are analyzed, the business owner may realize they need to shut down their business. After all the transactions have been posted to the general ledger in the appropriate accounts, Cynthia will prepare an unadjusted trial balance. Cynthia needs to ensure that the debits and credits in the general ledger are balanced. For every debit entry, there should be a credit entry that keeps the books in balance. These entries ensure that the entity has recognized its revenues and expenses in accordance with accrual concept of accounting.

The following accounting example regards someone who owns a toy store. Their accounting period is defined in one-month increments and they are going to begin the accounting cycle steps and close out the month. The toy store owner first begins by collecting their financial information regarding toy sales made per day, and payments made to the suppliers of the toys. Each transaction, once collected, is recorded in the general journal in the order which it occurred. The journal entries are now posted to the general ledger and organized by accounts.