Definition of Accounting Cycle
The accounting cycle is often described as a process that includes the following steps:
- Identifying, collecting and analyzing documents and transactions
- Recording the transactions in journals
- Posting the journalized amounts to accounts in the general and subsidiary ledgers
- Preparing an unadjusted trial balance and perhaps preparing a worksheet
- Determining and recording adjusting entries
- Preparing an adjusted trial balance
- Preparing the financial statements
- Recording and posting closing entries
- Preparing a post-closing trial balance
- Recording reversing entries
Accounting Cycle Today
The above steps were clear in a manual accounting system. However, today these steps are occurring with electronic speed and accuracy within sophisticated yet inexpensive accounting software. The accountant can enter adjusting entries into the software and can instantaneously obtain a complete set of financial statements by simply selecting them from a menu. After reviewing the financial statements, the accountant is able to make additional adjustments and almost immediately obtain the revised reports. The software will also prepare, record, and post the closing entries. It will also reverse adjusting entries that have been designated to be reversed.
