What is the Accounting Cycle?

The accounting cycle is the name used for the collective process to record and process the accounting events of the company. The series of steps begins when the transactions occur and ends with their inclusion in the financial statements. The additional accounting records used during the accounting cycle include the general ledger and the audit balance.

The concept of the accounting cycle

The accounting cycle is a set of methodological rules to ensure the accuracy and consistency of financial statements. The accounting systems have helped to reduce mathematical errors, but the standard process of the accounting cycle also helps to reduce errors. The accounting cycle is highly automated in accounting programs. Most transactions which use certain units – Accounts payable units for invoices received, and the program performs balance checks.

Steps of the accounting course

The organization begins its accounting session by recording transactions using daily journal entries. Entries depend on receipt of the invoice, recognition of sale or completion of other economic events. After the company inserts the daily ledger entries into the individual general ledger accounts, an unbalanced balance sheet is prepared, The balance of the audit is that the sum of the debt equals the sum of the credit in the financial records, and at the end of the period, the entries of the daily book are adjusted and these are the result of the corrections to be made as well as the results from the time the organization begins the accounting cycle Record them with transaction logging using journal entries. Entries are based on receipt of an invoice or acknowledgment of the sale or completion of other economic events. After the company inserts journal entries into individual G / L accounts, the unadjusted audit balance is prepared. The balance of the audit ensures that the total discounts are equal to the total balances in the financial records. At the end of the period, entries are adjusted. These are the result of the corrections to be made as well as the results of the passage of time. For example, an adjustment may result in interest income earned based on the passage of time.

Based on the publication of the adjustment of entries, the Company prepares a revised rate of review of the financial statements. The entity closes the interim accounts, income and expenses at the end of the period using closed entries. These closed entries also convert net.

The timing of the accounting cycle

The accounting cycle is started and completed during the accounting period. The period is a predetermined period of time each month, and every quarter and every financial year, transactions are added during the accounting cycle, while the rest of the accounting cycle is usually completed towards the end of the accounting period, public entities require that the financial statements be confirmed by certain dates. Therefore, their accounting cycle revolves around the dates of the reported requirements.

Accounting cycle vs. the budget cycle

The accounting cycle is different from the budget cycle. The accounting cycle focuses on historical events and includes financial transactions that have already been incurred and recorded correctly. Instead, the budget cycle relates to future operational performance and planning transactions that have not yet occurred.

The accounting cycle helps to produce information for external users, while the budget cycle is used primarily for internal management purposes.