The Accounting Cycle: 7 Steps To Financial Health

As a business owner, you're responsible for ensuring your company's financial health. This means keeping track of your income and expenses and making decisions based on what's most beneficial for your business. But how do you know where to start?

By understanding the accounting cycle, you can make more informed financial decisions for your business. With the help of professional accountants, you'll have a better understanding of your finances. In this blog post, we'll outline the steps of the accounting cycle and explain what each step entails.

What Is The Accounting Cycle?

The accounting cycle is a process that helps business owners understand their finances by tracking revenue and expenses over a specific period of time. This information is then used to make informed decisions about allocating resources.

The process starts at the beginning of the financial year. It ends with when final end-of-period account adjustments, the closing of temporary accounts, and the publishing of financial statements for the period just completed.

The Accounting Cycle Typically Consists Of The Following Steps:

According to information from expert CPAs, these are the steps for performing an accounting cycle:

1. Recording transactions: This step involves recording all financial transactions that have taken place within a specified period. This can be done manually or with accounting software.

2. Classifying transactions: Once all transactions have been recorded, they must be classified, such as income, expenses, assets, and liabilities. This step helps business owners understand where their money is coming from and where it's going.

3. Posting to ledger accounts: Ledger accounts keep track of specific financial information. For example, the Accounts Receivable ledger tracks all money owed to the business. After classified transactions, they must be posted to the appropriate ledger accounts.

4. Preparing a trial balance: A trial balance is a report that lists all ledger accounts and their balances. This step ensures that the debits equal the credits before financial statements are prepared.

5. Preparing financial statements: Financial statements show a business's financial health and performance over a specific time. The most common financial statements are the balance sheet, income statement, and statement of cash flows.

6. Adjusting entries: Adjusting entries are made at the end of the accounting cycle to account for transactions that have not yet been recorded. For example, if a bill is received but not paid, an adjusting entry would be made to account for the expenses that have been incurred but not yet paid.

7. Closing entries: Closing entries are made at the end of the accounting cycle to reset ledger accounts. This step ensures that all transactions from the current accounting period have been recorded and that the ledger accounts are ready to be used for the next accounting period.

Find Certified Accounting Services Near You

By understanding the steps of the accounting cycle, you can get a better handle on your business's finances. If you need help keeping track of your finances, Roberts Accounting is here to help! Our CPAs are dedicated to helping businesses grow and thrive.

We don't consider ourselves just a business but a team of professional accountants willing to make your life easier and guide you through the specific challenges of your business finances. If you're looking for top-quality accounting services, contact us today to learn more about us.