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Accounting Cycle
8 Steps in the Accounting Cycle
What is the Accounting Cycle?
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Steps in the accounting cycle
#1 Transactions
Transactions: Financial transactions start the process. If there are no financial transactions, there would be
nothing to keep track of. Transactions may include a debt payoff, any purchases or acquisition of assets, sales
revenue, or any expenses incurred.
#2 Journal Entries
Journal Entries: With the transactions set in place, the next step is to record these entries in the company’s
journal in chronological order. In debiting one or more accounts and crediting one or more accounts, the
debits and credits must always balance.
#3 Posting to the General Ledger (GL)
Posting to the GL: The journal entries are then posted to the general ledger where a summary of all
transactions to individual accounts can be seen. (This is where we utilize T-Accounts).
The general ledger serves as the eyes and ears of bookkeepers and accountants and shows all financial
transactions within a business. Essentially, it is a huge compilation of all transactions recorded on a specific
document or an accounting software, which is the predominant method nowadays. For example, if you want
to see the changes in cash levels over the course of the business and all their relevant transactions, you would
look at the general ledger, which shows all the debits and credits of cash.
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- Accounting, Income Statement, Generally Accepted Accounting Principles, Double-entry bookkeeping system
