The accounting cycle is is a phrase that is used to refer to the series of steps that companies go through to record and report their financial activity. The steps in the accounting cycle include:
- Identify transactions and events that need to be recorded.
- Analyze the transactions and events to determine how they should be recorded.
- Record the transactions and events in the appropriate accounts using journal entries.
- Use the trial balance to check for errors in the journal entries.
- Prepare financial statements, such as the income statement and balance sheet, using the information from the journal entries.
- Make adjusting entries to ensure the accuracy of the financial statements.
- Prepare an adjusted trial balance to check for errors after making adjusting entries.
- Close the temporary accounts and prepare a post-closing trial balance to check for errors.
This cycle is typically done on a monthly or quarterly basis and is used by companies to track their financial performance and ensure compliance with accounting standards.