ACCOUNTING

CYCLE
DEFINITION

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Accounting cycle is the
sequence of accounting
procedures to record,
classify and summarize
accounting information

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 WHY IS THE
ACCOUNTING
CYCLE
IMPORTANT?

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The accounting
cycle ensures that
all accounts are
updated and maintained
so all payments owed to
the company are
addressed. 

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The eight steps to the accounting
cycle include the following:
Step 1: Identify Transactions
Step 2: Record Transactions in a Journal
Step 3: Posting
Step 4: Unadjusted Trial Balance
Step 5: Worksheet
Step 6: Adjusting Journal Entries
Step 7: Financial Statements
Step 8: Closing the Books
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 STEP 1: IDENTIFY TRANSACTIONS

Each transaction should be identified

which category should it be placed.
Identifying transactions also help the
accountant determine how it affects
owner's equity and the different types of
assets and liabilities before recording the
transaction.
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 STEP 2: RECORD
TRANSACTIONS IN A JOURNAL
The transaction is listed in the appropriate
journal, maintaining the journal’s
chronological order of transactions. All
accounting transactions are recorded through
journal entries that show account names,
amounts, and whether those accounts are
recorded in debit or credit side of accounts.
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 STEP 3: POSTING

The transactions are posted to the

account that it belongs. These accounts
are part of the General Ledger, where you
can find a summary of all the business’s
accounts. This step is when balances from
the journal are transferred in the ledger.

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 STEP 4: UNADJUSTED TRIAL
BALANCE
It is the listing of general ledger account
balances at the end of a reporting period,
before any adjusting entries are made to the
balances to create financial statements. This
step is when the total of all debit accounts
and credit accounts are totaled. This totaled
numbers should be equal.
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 STEP 5: WORKSHEET
Worksheets are prepared at the end of an
accounting period and usually include a list of
accounts, account balances, adjustments to
each account, and each account’s adjusted
balance all sorted in financial statement
order. Sometimes, the balances in
worksheets are not equal. When this
happens, adjustments are done.
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 STEP 6: ADJUSTING JOURNAL
ENTRIES
These journal entries are usually made at
the end of an accounting period to allocate
income and expenditure to the period in
which they actually occurred. They are
done to correct the amounts of each
transaction. They are done to see the real
amount of each transaction.
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 STEP 7: FINANCIAL STATEMENTS

Income statements and Balance sheets are

prepared using the corrected balances.
Income statement shows a company's ability
to generate sales, manage expenses, and
create profits. over a period of time while
balance sheet provides an overview of
assets, liabilities, and stockholders' equity.

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 STEP 7 : CLOSING THE BOOKS

To close a book, closing entries are

used. Closing entries are those
journal entries made in a manual
accounting system at the end of an
accounting period to shift the
balances in temporary accounts to
permanent accounts.
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