The Accounting Cycle: 9-Step Accounting Process
The Accounting Cycle: 9-Step Accounting Process
The Accounting Cycle: 9-Step Accounting Process
Share
The accounting cycle, also commonly referred to as accounting process, is a series of procedures in the collection, processing, and
communication of financial information.
As defined in earlier lessons, accounting involves recording, classifying, summarizing, and interpreting financial information.
Financial information is presented in reports called financial statements. But before they can be prepared, accountants need to
gather information about business transactions, record and collate them to come up with the values to be presented in the
reports.
The cycle does not end with the presentation of financial statements. Several steps are needed to be done to prepare the
accounting system for the next cycle.
Accounting Cycle Steps
1. Identifying and Analyzing Business Transactions
The accounting process starts with identifying and analyzing business transactions and events. Not all transactions and events
are entered into the accounting system. Only those that pertain to the business entity are included in the process.
For example, a personal loan made by the owner that does not have anything to do with the business entity is not accounted for.
The transactions identified are then analyzed to determine the accounts affected and the amounts to be recorded.
The first step includes the preparation of business documents, or source documents. A business document serves as basis for
recording a transaction.