Accounting Cycle

The accounting cycle is a process that accountants use to record, process, and report financial information about a business. It begins with the initial recording of business transactions and ends with the preparation of financial statements. The accounting cycle is a continuous process that is repeated every accounting period.

The accounting cycle is divided into five main phases:

1. **Journalizing:** This is the process of recording business transactions in a journal. A journal is a chronological record of all business transactions.
2. **Posting:** This is the process of transferring the information from the journal to the general ledger. The general ledger is a summary of all the accounts in a company's financial records.
3. **Preparing adjusting entries:** This is the process of making adjustments to the general ledger to account for events that occurred during the accounting period but were not recorded in the journal. For example, a company may need to make an adjusting entry to record depreciation on its assets.
4. **Preparing closing entries:** This is the process of closing the temporary accounts in the general ledger. Temporary accounts are accounts that are used to accumulate information for a specific period of time, such as an accounting period. After the temporary accounts are closed, the balances are transferred to the permanent accounts.
5. **Preparing financial statements:** This is the process of preparing financial statements, such as the balance sheet, income statement, and statement of cash flows.

The accounting cycle is a critical process for businesses because it provides information about the financial health of the company. The information that is generated from the accounting cycle can be used by managers to make decisions about the future of the business.