An Important Accounting Term: “Accounting Cycle”


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Accounting Cycle is an important term used in accounting. It is an important best practice and an integrated part of any accounting system in any financial institution or business organization.

Defining Accounting Cycle

Accounting cycle can be defined as term used to collectively describe different steps for best practices in accounting. It compounds the process of recording and accounting events in the company. These processes involve a series of steps that must be recorded from the beginning of the project till its end.

Nine Steps in Accounting Cycle

The accounting cycle is a set of rules that govern the methodology involved in best practices. There are nine important best practices in the accounting cycle. These are:

  1. Data collection on transactions and events and analysis: This essential best practice requires proper documentation and collection of information. The collected data enables managers to make important decisions.
  2. Entering transaction in the general journal: Accountants must enter the information regarding transactions in the general journal as a best practice. Compliance with this is very important.
  3. Entering data into the general ledger: The general ledger is also an important accounting tool and entries into it are necessary. They help in ensuring that the accounts and project management is in a good state.
  4. Prepare an unadjusted trial balance: Having an unadjusted trial balance helps in comparing and tracking errors in entries.
  5. Amend entries: Amending entries is an important best practice to ensure the accounts are balanced. There must be accountability for every transaction.
  6. Prepare an adjusted trial balance: Preparing an adjusted trial balance is very important help in preparing a concise report. This best practice is very important for successful project management.
  7. Organize account entries into the financial statements: It is important to organize the entries into the financial statement. This helps in cross checking entries and detecting errors that may have been previously overlooked. Moreover, it provides easy-to-read data with transparency and clarity for best practices. A financial statement includes:
  • The income statement: This is prepared using data from expenses, revenue, gains, and losses incurred.
  • The balance sheet: This is prepared by using the liabilities, assets and equity accounts.
  • Statement of retained entries: This is prepared by using information on the dividend and the net income.
  • The cash flow statement: This can be prepared by using information from other financial statements through direct or indirect methods.
  1. Close the books: Closing the book means closing the accounts once they are all balanced and accounted for.
  2. Prepare a post-closing trial balance to aid in reading-through the accounts: This is an important best practice most accountants and managers ignore. A post-closing trial balance will help in further mitigating risks due to overseen errors.

Accounting cycle is also referred to as the “book-keeping cycle”. There are computerized accounting systems that help in improving best practices by reducing errors. Often there are mathematical errors that may arise in the process of entering data. This is why software applications have been designed to assist in ensuring best practices.

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