Accounting Cycle Definition

Definition

The word bookkeeping cycle denotes the frame and procedures followed in each accounting period. The bookkeeping cycle starts with the identification of incidents and trades, and finishes with the after-close trial balance.

Explanation

The bookkeeping practice is actually a conceptual framework which refers to the procedure a provider travels through each accounting interval. Even though the Precise amount and description of all those measures in the bicycle is fairly subjective, the center procedures comprise:

  • Journalization of Transactions: identification of transactions and events as they occur and documenting them with the correct journal entry.
  • Posting to Ledger: shifting the diary debits and credits into the suitable ledger accounts.
  • Trial Balance and Adjustments: comprises the preparation of varied methods to establish debits equal credits, and work correcting entrances such as accruals.
  • Preparing Financial Statements: gathering of bookkeeping advice to construct the provider ‘s balance sheet, income statement, and statement of owner’s equity.
  • Closing Accounts: diminishing the total amount of temporary balances to zero in prep for that journalization of trades connected to all the upcoming accounting period.
  • After-Close Trial Balance: after closing of balances and alterations, this measure demonstrates that debits continue to be add up to credits.

An example of this accounting cycle seems beneath: