The accounting cycle is a series of steps that organizations go through to record financial transactions, maintain accounting records, and produce financial statements. It involves recording transactions, posting them to accounts, performing adjustments, preparing a trial balance, and ultimately generating financial reports like the income statement, balance sheet, cash flow statement, and statement of retained earnings. Public companies must have their financial statements audited by an independent auditor before publishing them.

1. Ms.S.Jayalakshmi M.Com., M.B.A
Assistant Professor of Commerce (CA)
Bon Secours College for Women, Thanjavur.

2. The Accounting Cycle
Businesses, governments, and other
organizations rely on their financial accountants
to maintain their accounting systems, record
financial transactions, and help meet their
financial reporting obligations. In an ongoing
business, these activities are part of a cyclic,
iterative process known as the Accounting Cycle.

3. Define Accounting Cycle:
The Accounting Cycle is a sequence of steps or actions with an
organization's financial transactions and accounts. Each iteration
of the cycle runs across a complete accounting period, usually a
fiscal quarter or year.
The cycle begins with the first financial transactions of the period
and their entry into a journal. The cycle ends when the
organization makes final end-of-period account adjustments,
closes temporary accounts, and publishes financial statements
for the period just ended.

4. Governments and regulatory agencies almost everywhere
require public companies to publish financial statements—reports—
for the most recently ended annual accounting period. The financial
statements that are mandatory, practically everywhere, are:
•Income Statement
•Balance Sheet (Statement of Financial Position)
•Statement of Changes in Financial Position (Cash Flow Statement)
•Statement of Retained Earnings

5. Public companies must also send these reports to
shareholders in an Annual Report, just before the
company's annual meeting to elect directors. The financial
results for the period are of keen interest to shareholder
owners, directors, officers, investors, competitors,
industry analysts—and the firm's employees.

6. The accounting cycle is "all about" managing, updating, and
reporting on the firm's accounts.
The basic system building block is the account. An
account in the system is merely a record of the values and value
changes for a specific class of items or events. Each account has
the following properties:
 An account category: Revenue, Expense, Asset, Liability, or
Equity All accounts must belong to one of these categories.
 A unique account name and number
A balance
For Asset and Expense accounts, a balance greater than zero is
a debit balance. For Revenue, Liability, and Equity accounts, a
balance higher than zero is a credit balance. The account
balance changes, of course, with every account debit or credit
transaction.

8. Accounting Cycle Step 1
Financial and Non-Financial Transactions
For large and complex firms, events impact accounts occur frequently and more
or less continuously. Exhibit 2 above suggests just a few of the many transactions
that can ultimately impact accounting system accounts. For example, the
accounting system is affected by every:
Revenue Earned Asset purchase Expense
Customer Cash Payment Borrowing Sale Closing
Account Receivable Bad Debt Write Off Dividend Declared
For large firms, the list of transaction types could extend to scores or hundreds of items.

9. Accounting Cycle Step 2
Transactions Enter the Journal
Accounting systems existed entirely on paper,
transactions entered the records when a bookkeeper hand-
wrote entries into a journal (or daybook) soon after they
occurred. It was and still is a rule that "transactions" go into
the journal in the order they occur, shortly after they happen.
As a result, entries in the journal appear in chronological order.
In this way, should anyone ask which transactions occurred on
a given day, they can turn to the journal for an answer.

10. Accounting Cycle Step 4
Error Checking and Trial Balance in the Trial Balance Period
The accounting cycle continues until shortly before the period
end. At this point, accountants create a trial balance from
ledger entries.
Exhibit 5 below is an excerpt from Exhibit 1, focusing on
the trial balance positioning between ledger posting and the
financial statement reporting.

11. Accounting Cycle Step 5
The Reporting Period
The final steps in the accounting cycle are preparing
and publishing the period's financial reports. Publishing
must occur after the accounting period closes, of course,
because the published statements cover account activity
through the final day of the period. Publishing may not
happen, however, until the firm allows time for several kinds
of final adjustments and auditing. Note that the time
between closing the reporting period and the date the firm
authorizes statements for publishing—the fifth step in the
accounting cycle—is called the reporting period

12. Four Mandatory Statements
Governments, regulatory bodies, and tax authorities in most
countries require public companies to produce and file four mandatory
statements.
The Income statement.
The Balance sheet (or Statement of financial position).
The Statement of changes in financial position (or Cash flow statement).
The Statement of retained earnings.
Auditing Before Publishing
Public companies must obtain an auditor's opinion on their financial
statements before they publish and send them to shareholders in an Annual
Report, or regulatory bodies, or governments. Companies ensure impartiality
by engaging independent third-party auditors—hired by the firm, but not
working as employees of the audited firm.