Accounting Cycle
The accounting cycle is the holistic process of recording and processing all financial transactions of a company, from when the transaction occurs, to its representation on the financial statements, to closing the accounts. One of the main duties of a bookkeeper is to keep track of the full accounting cycle from start to finish. The cycle goes on continued till the business ends.
- Transactions : the first task of accounting is to identify the transactions of financial character and measure them in terms of money. Transactions may include a debt payoff, any purchases or acquisition of assets, sales revenue, or any expenses incurred.
- 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.
- Posting to the General Ledger (GL) :The journal entries are then posted to the general ledger where a summary of all transactions to individual accounts can be seen.
- Trial Balance : At the end of the accounting period (which may be quarterly, monthly, or yearly, depending on the company), a total balance is calculated for the accounts.
- Financial Statements: The balance sheet, income statement, and cash flow statement can be prepared using the correct balances.