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What Is The Accounting Cycle?: Financial Statements Bookkeeper

The accounting cycle is the process by which all financial transactions of a company are recorded, processed, and then reflected on its financial statements. It involves recording transactions in journals, posting them to accounts in the general ledger, preparing an initial trial balance and adjusting entries, and using the results to create final financial statements. The cycle then repeats at the end of each new fiscal period as long as the company remains in business.

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106 views4 pages

What Is The Accounting Cycle?: Financial Statements Bookkeeper

The accounting cycle is the process by which all financial transactions of a company are recorded, processed, and then reflected on its financial statements. It involves recording transactions in journals, posting them to accounts in the general ledger, preparing an initial trial balance and adjusting entries, and using the results to create final financial statements. The cycle then repeats at the end of each new fiscal period as long as the company remains in business.

Uploaded by

marissa casareno almuete
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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What is the Accounting Cycle?

The accounting cycle is the holistic process of recording and processing all
financial transactions of a company, from when the transaction occurs, to its
representation on the financial statements, to closing the accounts. One of the
main duties of a bookkeeper is to keep track of the full accounting cycle from
start to finish. The cycle repeats itself every fiscal year as long as a company
remains in business.

The accounting cycle incorporates all the accounts, journal entries, T accounts,
debits and credits, adjusting entries over a full cycle.

 
 

Steps in the accounting cycle

#1 Transactions

Transactions: Financial transactions start the process. If there are no financial


transactions, there would be nothing to keep track of. Transactions may
include a debt payoff, any purchases or acquisition of assets, sales revenue, or
any expenses incurred.

#2 Journal Entries

Journal Entries: With the transactions set in place, the next step is to record
these entries in the company’s journal in chronological order. In debiting one
or more accounts and crediting one or more accounts, the debits and credits
must always balance.

#3 Posting to the General Ledger (GL)

Posting to the GL: The journal entries are then posted to the general ledger
where a summary of all transactions to individual accounts can be seen.

#4 Trial Balance

Trial Balance: At the end of the accounting period (which may be quarterly,
monthly, or yearly depending on the company), a total balance is calculated
for the accounts.

 
#5 Worksheet

Worksheet: When the debits and credits on the trial balance don’t match, the
bookkeeper must look for errors and make corrective adjustments that are
tracked on a worksheet.

#6 Adjusting Entries

Adjusting Entries: At the end of the company’s accounting period, adjusting


entries must be posted to account for accruals and deferrals.

#7 Financial Statements

Financial Statements: The balance sheet, income statement and cash flow
statement can be prepared using the correct balances.

#8 Closing

Closing: The revenue and expense accounts are closed and zeroed out for the
next accounting cycle. This is because revenue and expense accounts are
income statement accounts, which show performance for a specific period.
Balance sheet accounts are not closed because they show the company’s
financial position at a certain point in time.

General Ledger

The general ledger serves as the eyes and ears of bookkeepers and
accountants and shows all financial transactions within a business. Essentially,
it is a huge compilation of all transactions recorded on a specific document or
an accounting software, which is the predominant method nowadays. For
example, if you want to see the changes in cash levels over the course of the
business and all their relevant transactions, you would look at the general
ledger, which shows all the debits and credits of cash.

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