Quote from lisasmith on November 19, 2025, 4:49 am

There are generally not 10 different types of accounting cycles, but rather 8 to 10 steps that make up a single, continuous Accounting Cycle. Accounting Services in Cleveland. This cycle is the systematic process used to record, process, and report a company's financial transactions over a specific period (like a month, quarter, or year).

The steps ensure accuracy and compliance with accounting principles, and the process repeats at the beginning of the next period.

Here are the 10 common steps often cited for a complete accounting cycle:

1. Identify Transactions

The cycle begins by recognizing and analyzing all financial events that have occurred in the business, such as sales, purchases, payments, and receipts. Each transaction must be supported by a source document (like an invoice or receipt).

2. Journalize Transactions (Record)

Transactions are recorded chronologically in the General Journal (or a special journal). This is done using the double-entry bookkeeping system, where every transaction is recorded with at least one debit and one equal credit to maintain the fundamental accounting equation ($Assets = Liabilities + Equity$).

3. Post to the General Ledger

The individual debit and credit entries from the journal are then transferred, or "posted," to the appropriate individual accounts in the General Ledger (GL). This step summarizes all activity for each specific account (like Cash, Accounts Payable, or Revenue).

4. Prepare the Unadjusted Trial Balance

At the end of the accounting period, a list of all accounts and their balances is prepared. The purpose of this step is to mathematically verify that the total value of all Debit balances equals the total value of all Credit balances.

5. Journalize and Post Adjusting Entries

These entries are made to account for items that have been earned or incurred but not yet formally recorded. This step is crucial for compliance with the accrual principle. Examples include recognizing depreciation, accrued expenses, and prepaid assets used up.

6. Prepare the Adjusted Trial Balance

After all adjustments (from step 5) are recorded and posted to the General Ledger, a new trial balance is created. This ensures the debits and credits still balance after the adjustment process and provides the final, correct balances used to create the financial statements.

7. Prepare Financial Statements

Using the balances from the adjusted trial balance, the three primary statements are formally created:

Income Statement (Profit or Loss)

Statement of Retained Earnings (or Owner's Equity)Balance Sheet (Financial Position)

8. Journalize and Post Closing Entries

Temporary accounts (Revenues, Expenses, and Dividends/Drawings) are "closed" by transferring their balances to a permanent account (usually Retained Earnings or Capital). This step zeros out the temporary accounts to prepare them for the next accounting period.

9. Prepare the Post-Closing Trial Balance

A final trial balance is prepared, listing only the permanent accounts (Assets, Liabilities, and Equity). This ensures that the books are balanced and ready to begin the next cycle with the correct starting balances.

10. Reversing Entries (Optional Step)

Some accountants choose to reverse certain adjusting entries (typically accruals) at the beginning of the new period. This simplifies the record-keeping of subsequent transactions but is an optional step that is not always included in the cycle. Accounting Services Cleveland.