key term - Accounting cycle

Definition

The accounting cycle is a systematic process of identifying, recording, and summarizing financial transactions during an accounting period. It culminates in the preparation of financial statements that reflect the company's financial performance and position.

5 Must Know Facts For Your Next Test

1. The accounting cycle begins with identifying and analyzing business transactions.
2. Journal entries are recorded in the general ledger as part of the accounting cycle.
3. The trial balance is prepared to ensure that debits equal credits after posting all journal entries.
4. Adjusting entries are made at the end of the period to account for accrued and deferred items.
5. The final steps include preparing financial statements and closing temporary accounts.

Review Questions

Related terms

General Ledger:

A comprehensive record of all financial transactions conducted by a company during a particular period.

Trial Balance:

A statement that lists all the balances in each account to check if total debits equal total credits.

Adjusting Entries:

Journal entries made at the end of an accounting period to allocate income and expenses to their actual periods.