The accounting cycle is the step-by-step process that businesses follow to track financial transactions and prepare financial statements. It starts when a transaction happens and ends with closing the books for the period.

“The accounting cycle is a systematic process of identifying, recording, classifying, summarizing, and reporting a company’s financial activities.”

Let’s walk through the cycle in a simple and clear way.

The accounting cycle includes several key stages that help ensure a business’s financial records are complete and accurate. It begins with identifying transactions by gathering source documents like receipts or invoices. Next, businesses record journal entries, using debits and credits to capture each transaction. These entries are then posted to ledger accounts in the General Ledger. Once that's done, a trial balance is prepared to check if the total debits equal total credits. Afterward, businesses make adjusting entries for items such as depreciation, accrued expenses, or unearned revenue. This leads to creating an adjusted trial balance to confirm that everything still balances after adjustments. With accurate data in place, the business then prepares financial statements, including the Income Statement, Balance Sheet, and Cash Flow Statement. Finally, it’s time to close the books by resetting temporary accounts like revenue and expenses in preparation for the next accounting period.

Following the accounting cycle ensures that every transaction is properly documented and no important details are missed. It creates organized, accurate records that form the basis of reliable financial reporting.

Without this cycle, businesses would risk making decisions on incomplete or incorrect data, leading to errors in tax filings, missed opportunities, or poor financial management.

✅ The accounting cycle is a complete process—from transaction to financial reports.
✅ It ensures nothing is missed and that your books stay clean and balanced.
✅ Includes journal entries, posting to ledgers, trial balances, adjustments, and closing.
✅ A proper cycle leads to accurate financial statements.
✅ Following this cycle keeps your business organized, transparent, and tax-ready.