What is an Accounting Cycle?

An accounting cycle is a process that is used to conduct the financial side of a business when transactions (income and expenses) occur over the length of an accounting period. Each accounting period is determined by a business and can be as long as a month, quarter, or year. The following are the steps included in an accounting cycle: Identifying Transactions: Whenever a transaction comes in or out of the business it is then identified. Record Transaction: All transactions need to be recorded in the books to ensure nothing is missed and to get an accurate display of your business’s financial health. Analyze Transactions: It’s important to analyze all transactions over the accounting period by comparing them to bank statements or other records of transactional history to make sure the numbers are accurate. Adjust Records: If any transaction amounts are missing or incorrect, then they will need to be corrected before the end of the cycle. Prepare Financial Statements: Financial statements will show a picture of the overall health of your business and be a conclusion of all transactions completed within the period. Close the Books: Once everything is finalized, the books can be closed by making sure all debits and credits match and the cycle will start again for the next accounting cycle.