Accounting Cycle


The Accounting Cycle may be described as a process that is a collective amalgamation of processes such as defining, tracking, and reviewing all of the firm's accounting activities during the year.

The firm's financial statement is made up of a sequence of accounting measures that begin with the beginning of the transactions and conclude with the end of the transactions. Which contains ledgers and trial balances in addition to financial statements such as benefit and loss statements and balance sheets.

It can also be described as the process of recording, sorting, approving, and making various payments to the firm's partners, suppliers, and employees over a certain time period.

Many businesses settle their books of accounting and funds at the end of each quarter and again at the end of the year. It aids in avoiding and resolving any financial and accounting inconsistencies.

Based on staff and other market tools, some small-scale companies tend to search and close accounting worksheets on a weekly or monthly basis.

8 Steps of Accounting Cycle

1. Transactions:

The process begins with the firms' financial dealings with different internal and external parties. Profit rates, sales taxes, overheads, taxes, debts, acquisitions, and asset acquisition are only a few examples.

2. Journal Entries:

Following the transactions, the entries in the firm's journal should be documented in chronological order. Both sides of the entries should still match during the debiting and crediting phase.

3. General Ledger:

Posting the journal entries into the general ledger is the next step in the accounting period. It contains an exact summary of all transactions, as well as individual accounts.

4. Trial Balance:

Following the Accounting Cycle, which can be weekly, quarterly, or yearly depending on the firm's financial targets, the gross balance is measured in the trial balance.

5. Accounting Worksheet:

The worksheet keeps track of and records any mistakes in the trial balance's debits and credits. The bookkeeper investigates the mistakes and takes appropriate action to correct them in the worksheet.

6. Adjusting Entries:

By the conclusion of the accounting period, the entries must be updated in accordance with financial guidelines, and accruals and deferrals must be reported.

7. Financial Statements:

The next move is to create cash flow accounts, balance sheets, and other financial statements.

8. Closing:

The final step is to close and zero out all expense and revenue accounts for the next Accounting Cycle. The balance sheet is not closed and it displays the firm's financial condition at a certain time frame. The other statements, on the other hand, are about a specific time period.


  1. The firm's Accounting Cycle is planned and finished during the accounting season. However, the accounting periods of various companies and countries differ depending on various considerations and standards. The annual or quarterly cycle is the most general.
  2. Transactions are reported and financial statements are prepared during the Accounting Cycle.
  3. Furthermore, companies that are public agencies are expected to apply the same to the public and financial regulatory bodies by certain deadlines.

Accounting Cycle v/s Budget Cycle

Accounting Cycle focuses on the firm's past activities and assures that all financial transactions that have occurred are recorded properly and appropriately.

The budget period, on the other hand, is concerned with the firm's future transactions and results.

It generates information for external partners, while the budget period generates information for the firm's management for internal work and decision-making processes.

Balancing and Accounting Cycle

The primary goal of accounting is to ensure that all financial statements are correctly accounted for and that the balance is right. Even if accounting mistakes exist, they must be reversed in order to arrive at a balance between all debits and credits.

Some of the common reasons for imbalance accounting are:

  • Posting in a wrong account
  • Transaction is forgotten
  • Duplicate postings of the same transaction
  • Posting of the incorrect amount

Work With Us

The growth of SMEs and startups are essential for the economic growth of the country. Our team of expert consultants works with many SMEs and startups and helps them improve their accounting standards.

To know more, you may write us at [email protected] or contact us.

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