When complete sequence of accounting procedure is done which happens frequently and repeated in same directions during an accounting period, the same is called an accounting cycle.
Steps/Phases of Accounting Cycle
The steps or phases of accounting cycle can be developed as under:
(a) Recording of Transaction: As soon as a transaction happens it is at first recorded in subsidiary book.
(b) Journal: The transactions are recorded in Journal chronologically.
(c) Ledger: All journals are posted into ledger chronologically and in a classified manner.
(d) Trial Balance: After taking all the ledger account closing balances, a Trial Balance is prepared at
the end of the period for the preparations of financial statements.
(e) Adjustment Entries : All the adjustments entries are to be recorded properly and adjusted
accordingly before preparing financial statements.
(f) Adjusted Trial Balance: An adjusted Trail Balance may also be prepared.
(g) Closing Entries : All the nominal accounts are to be closed by the transferring to Trading Account
and Profit and Loss Account.
(h) Financial Statements : Financial statement can now be easily prepared which will exhibit the true financial position and operating results.