Meaning of an Accounting Cycle

The process of accounting from recording to summarizing is also termed as an Accounting Cycle. The sequential steps involved in an accounting cycle are :-

Step - 1 (Journalising)

Record the transactions and events in the Journal.

Step - 2 (Posting)

Transfer the transactions (recorded in the journal), in the respective accounts opened in the Ledger.

Step - 2 (Balancing)

Ascertain the difference between the total of debits amount column and the total of credit amount column of a ledger amount.

Step - 3 (Trial Balance)

Prepare a list showing the balances of each and every account to verify whether the sum of the debit is equal to the sum of the credit balances.

Step - 4 (Income Statement)

Preparing Trading and Profit & Loss Account to ascertain the profit & loss for the accounting period.

Step - 5 (Position Statement i.e. Balance Sheet)

Prepare a balance sheet to ascertain the financial position as at the end of the accounting period.