Accounting Cycle
What is accounting cycle?
The accounting cycle is the process that businesses use to track and report its financial performance. This includes recording transactions, posting them to journals, making adjusting entries, and preparing financial statements.
How many steps are there in accounting cycle?
There are generally 9 steps in the accounting cycle:
- Analyze transactions
- Post transactions to journals
- Prepare a trial balance
- Journalize and post adjustments
- Prepare an adjusted trial balance
- Calculate financial ratios and prepare a performance report
- Issue financial statements
- Archive accounting records
- Close the accounting period
Types of Accounting
The main types of accounting are cash accounting and accrual accounting. Cash accounting is a method of recording financial transactions in which revenue and expenses are recorded when money is received or paid out, respectively. Accrual accounting is an accounting method used to measure the performance and position of a business by recognizing economic events regardless of when the cash transaction occurs. This means that income or expenses are recognized at the time they occur, not necessarily when the money is paid or received.
