Accounting Cycle

Understanding an accounting cycle can be one of the most interesting things in the basic accounting. The workflow of accounting is always circular so it is recommended to understand the accounting cycle to implement effectively at your own business. The first step in this circular motion is recording the transactions and then maneuvering these transactions over a certain accounting period.

The accounting cycle is comprised of eight basic steps or stages. The number one step is transactions then there is the step of journal entries, next comes the stage of posting that is immediately followed by trial balance, after trial balance there comes the worksheet which leads to the step of adjusting journal entries followed by the formation of financial statements and then comes the last step of closing the books.

Transactions

All the financial activities such as sales, returns, purchases, exchanging of assets are included in the transactions.

Journal Entries

The process of listing of the transaction into an appropriate journal is called journal entries.

Posting

There are separate accounts for all the transactions and these transactions are posted to their appropriate accounts.

Trail Balance

It is calculated at the end of a certain accounting period

Worksheet

It is the record of trial and balance and the errors in trial balance along with their adjustments

Adjusting Journal Entries

After adjusting trial balance you also need to adjust the journal entries in order to remove errors

Financial Statements

Financial statements include balance sheet and income statements

Closing the books

At this stage books are closed for the revenues and expense entries and a new accounting cycle begins with the zero entries and zero balance in these accounts.