Accounting Cycle

8 Steps of the Accounting Cycle

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Analyzes Transactions

Financial transactions start the process. Transactions can include the sale or return of a product, the purchase of supplies for business activities, or any other financial activity that involves the exchange of the company’s assets, the establishment or payoff of a debt, or the deposit from or payout of money to the company’s owners.


The transaction is listed in the appropriate journal, maintaining the journal’s chronological order of transactions. The journal is also known as the “book of original entry” and is the first place a transaction is listed.


The transactions are posted to the account that it impacts. These accounts are part of the General Ledger, where you can find a summary of all the business’s accounts

Prepare Worksheet

In smaller companies the adjustments are usually entered directly in the journal and posted to the ledger, and the financial statements are prepared directly from the adjusted trial balance. For larger companies, however, which may require many adjusting entries, a worksheet is essential. The work sheet is identified by a heading that consists of the name of the company, the title "Work Sheet", and the period of time covered (as on the income statement).

Prepare finacial statements

Financial statements, though often feared as a very intimidating portion of small business accounting, are just a matter of putting the trial balance amounts onto properly formatted statements.
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Journalize Adjusting and Closing Entries

Adjustments are also made to account for the depreciation of assets and to adjust for one-time payments (such as insurance) that should be allocated on a monthly basis to more accurately match monthly expenses with monthly revenues. After you make and record adjustments, you take another trial balance to be sure the accounts are in balance.

Post Adjusting and Closing Entries

You post any corrections needed to the affected accounts once your trial balance shows the accounts will be balanced once the adjustments needed are made to the accounts. You don’t need to make adjusting entries until the trial balance process is completed and all needed corrections and adjustments have been identified.

Prepare Post-Closing Trial Balance

You close the books for the revenue and expense accounts and begin the entire cycle again with zero balances in those accounts.