What is an accounting cycle?
You may have asked yourself this question at some point in your business career. The next question may have been why do I need to know this?
An accounting cycle is not like other cycles including life cycles and earth cycles. But it can become like a unicycle which requires great balance, trial balance that is.
OK, enough of my accounting wit. The accounting cycle is circular. The process of recording financial transactions and producing financial statements generally follows a series of activities. Each transaction is recorded in some form of accounting journal whether manually or electronically. The journal entries become the source to produce the accounting ledger which shows the cumulative debits, credits and balance for each account. The ledger drives the trial balance to root out any entry errors. The balance sheet, income statement and cash flow statement are prepared using the entries in the ledger. The accounting cycle then starts over with the next set of transactions.
That’s the high level picture of the accounting cycle that is essential for business executives to know and understand.
- Does the worksheet contain a trial balance (wiki.answers.com)
- Three Financial Guesstimates Every Business Plan Needs (entrepreneur.com)
- Single entry accounting (martinjquinn.com)