14 - An Overview of the Accounting Cycle

Today we will discuss the accounting cycle. This is the process taken each period to record transactions, prepare the financial statements, and to reset the temporary accounts to zero for the next period.

Keep in mind that the steps you may see in your accounting textbook or elsewhere may be slightly different - I have simplified some of the steps:

Step 1 – Record transactions as journal entries in the general ledger;

Step 2 – Prepare an unadjusted trial balance as of the end of the period;

Step 3 – Prepare adjusting journal entries and record on general ledger;

Step 4 – Prepare an adjusted trial balance as of the end of the period;

Step 5 – Prepare the financial statements;

Step 6 – Prepare and record closing journal entries to reset temporary accounts;

Step 7 – Prepare a post-closing trial balance.