Solution Matrix • Cost-Benefit-Analysis

Accounting cycle

The accounting cycle is the sequence of accounting procedures starting with journal entries for various transactions and ending with the financial statements and the closing of temporary accounts.

During each accounting period (month, quarter year, or year),  a bookkeeper normally enters transactions in a  journal as they occur, in the order they occur. Journal entries are regularly posted to a ledger, which organizes entries by account and account category, and which contains all accounts used by the company or other entity.  Posting to the ledger is also usually the responsibility of a bookkeeper.

The accounting cycle continues when the accountant creates a trial balance from ledger entries. The trial balance is created to see whether or not debits=credits throughout the system (as they should in double entry bookkeeping). It there are places where the debits=credits equation does not hold, the accountant will typically create temporary accounts to bring about a balance, while investigating and correcting the cause of the problem.

The fiinal steps in the accounting cycle are preparing and publishing the period's financial reports (including primarily the income statement, balance sheet, statement of changes in financial position, and statement of retained earnings) and closing the temporary accounts.

The basic building block of the company's accounting system, and the focus of accounting activity, is the account—a place for recording changes in value for a specific purpose; all accounts are either the so-called balance sheet accounts (asset accounts, liabilities accounts, or equity accounts), or they are so-called income statement accounts (revenue accounts or expense accounts). The complete list of accounts for use throughout the whole accounting cycle is specified in the company's chart of accounts.

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