What Is the Accounting Cycle? Steps, Definition, and Examples

作者：Coursera Staff • 更新于 Feb 23, 2026

Learn about the eight steps involved in the accounting cycle, with each step defined and broken down. Then, explore an example and some key skills you can build by understanding the accounting cycle.

[Featured Image] A financial professional progresses through the accounting cycle while working with data on a computer in an open office.

Key takeaways

The accounting cycle is a critical component of producing key financial statements at the end of a financial reporting period.

The accounting cycle begins with recording journal entries for financial transactions and ends when you close the books and generate financial statements.

By following the accounting cycle, you can catch errors in reporting and make adjusting journal entries to ensure accurate financial reporting.

You can learn about the accounting cycle to help you build fundamental skills in double-entry bookkeeping, accrual accounting, and revenue recognition.

Learn about each step in the accounting cycle and why it's important to follow, and see an example of how it catches errors. If you’re ready to start building in-demand bookkeeping skills, consider enrolling in the Intuit Academy Bookkeeping Professional Certificate. You’ll have the chance to build bookkeeping fundamentals that help you produce key financial statements in as little as two months. Upon completion, you’ll have earned a career credential to share on your resume and LinkedIn profile.

What is the accounting cycle?

The accounting cycle is an eight-step process you use throughout the fiscal year or reporting period to ensure accuracy, meet compliance, and generate financial reports. It begins with recording each transaction and closing the books at the end of the fiscal year, which may not always be January 1st to December 31st, but could be monthly, quarterly, or yearly.

Bookkeepers and accounting teams are responsible for maintaining the accounting cycle throughout the fiscal period by recording transactions, reconciling accounts, and producing financial statements.

Why the accounting cycle matters

The accounting cycle allows you to standardize your company’s accounting system and principles. Its organization also allows you to make better decisions using your financial data. The US Securities and Exchange Commission requires publicly traded companies to create and file reports with the organization, which structures these companies’ accounting cycles. In order to stay compliant, they must record and report all of their transactions thoroughly.

What is full-cycle accounting?

Full-cycle accounting, another way to describe the accounting cycle, refers specifically to the process of managing the accounting cycle, from recording journal entries to closing the books. You may see "full-cycle accountant" on a resume to indicate the individual has experience managing the accounting cycle. If you see the term in a job description, it explains that the company wants you to manage the entire accounting cycle.

8 steps in the accounting cycle

While every company's procedures in the accounting cycle may vary slightly, you can generally think through the accounting cycle in these eight steps:

Identify and analyze transactions.
Record transactions in the journal.
Post entries to the general ledger (GL).
Prepare an unadjusted trial balance.
Analyze using a worksheet.
Make adjusted journal entries.
Prepare financial statements.
Close the books.

Take a closer look at each step in the accounting cycle.

Step 1: Identify and analyze transactions.

The first step in collecting information for the accounting cycle is finding your transactions. These could include sales, loans, income, purchases, or items such as accounts receivable and accounts payable. You can choose to automate the collection of many of these transactions using accounting software.

Step 2: Record transactions in the journal.

Once you find all of your financial transactions, you need to record them in your company's journal in chronological order. Ensure you practice double-entry bookkeeping principles by having each entry’s debit and credit offset to zero.

Step 3: Post entries to the general ledger.

Once you record financial transactions into their respective accounts, they will post to the general ledger, where you can see the summary of all accounts and their respective amounts. Common accounts you’ll see in the general ledger include assets, liabilities, expenses, and equity. Each account will contain sub-accounts. For example, in your liabilities account, you may have a business credit card and accounts payable that make up your total liabilities.

Step 4: Prepare an unadjusted trial balance.

At the end of your company's accounting period, which could be monthly, quarterly, or yearly, you’ll prepare the unadjusted trial balance. This totals the balance of all accounts, which you will use to verify against your credits and debits.

Step 5: Analyze using a worksheet.

If you have an imbalance in credits and debits in your unadjusted trial balance, you use a worksheet to balance your books. In your worksheet, you may need to adjust for accruals, depreciation, and prepaid expenses. The worksheet lists all credits and debits so you can spot imbalances and errors.

Step 6: Make adjusted journal entries.

If you have spotted an imbalance in your credits and debits in your worksheet, you will need to adjust journal entries. You can account for accruals and deferrals here. Ensure that your adjusted journal entry for any errors indicates that it is changing a previous journal entry. For example, if an invoice is improperly recorded, instead of changing that previous journal entry, you would make a new one, adjusting for that balance.

Step 7: Prepare financial statements.

With your adjusted journal entries now balancing your books, you can prepare the financial statements required by your company. Common financial statements you will prepare include balance sheets, income statements, and cash flow statements. Ensure you use your adjusted trial balance and follow Generally Accepted Accounting Principles (GAAP) as you prepare your statements.

Step 8: Close the books.

Once you create your financial statements for the accounting period, you will close the books for that period. Closing the books resets accounts like expenses, revenue, and income to zero so that they can begin fresh in the next period. Net income or loss carries over to the next accounting period via the permanent retained earnings account. Prepare your books for the next accounting period.

Accounting cycle example

To illustrate the process of the accounting cycle above, consider the fictional small business known as Molly's Custom Furniture, run by Molly, who also does her own books. Follow Molly's accounting cycle below:

1. Molly gathers all of her transactions for Q1, which include all expenses, sales, debts, purchases, accounts payable, and accounts receivable.

2. Molly then records each transaction using double-entry bookkeeping procedures.

3. Molly then posts all of these entries to her GL so that she can see the summary of every account.

4. Q1 is up, so Molly prepares her unadjusted trial balance by adding up all the debits and credits from her GL.

5. Molly begins analyzing her worksheet and finds a $900 discrepancy in her books.

6. Molly then combs back through her transactions to find an error in an invoice input. The invoice entered was supposed to be $1,000 but was entered as $100. In other words, she forgot a 0. So, she corrects the entry by making a new journal entry of $900.

7. Molly generates her income statement, balance sheet, and cash flow statement to view her business's financial health.

8. Now that she has her statements, Molly closes her books by zeroing out the balances of her income and expense accounts, moving her net income into retained earnings.

Accounting cycle vs. continuous accounting

The accounting cycle follows traditional accounting methods, where much of the work is completed manually using old accounting records. However, continuous accounting leverages real-time financial data for accounting. Unlike the accounting cycle, which functions heavily at the accounting period close, continuous accounting works throughout the accounting period, continually updating daily. It allows you to complete end-of-the-period financial accounting more quickly and enables you to detect errors sooner.

Continuous accounting automates many aspects of data entry, such as bank reconciliations, journal entries, transactions, accounts payable and receivable, and expense organizations. If you want to move to continuous accounting, you can start slowly by automating one task, such as bank reconciliation, at a time.

What is accrual accounting?

In accrual accounting, you record the accounting transaction when it occurs rather than when cash flows from one hand to another. The purpose of this accounting method is to show the financial future of the company rather than a current snapshot, since it shows where future income or debts lie.

Generally Accepted Accounting Principles (GAAP) require accrual accounting, while ‌ International Financial Reporting Standards (IFRS) encourages it for most businesses, except very small ones.

Skills you build by understanding the accounting cycle

By understanding the accounting cycle, you build fundamental skills in the accounting principles that eventually produce key financial statements (income statement, balance sheet, cash flow statement). Throughout the process, you build skills in:

Double-entry bookkeeping: Ensuring that debits and credits zero out for each journal entry

Revenue recognition: Identifying when your company makes a sale or earns income

Accrual accounting: Processing revenue as earned and expenses as incurred, whether the cash from the sale or purchase has moved

Matching principle: Matching expenses directly to revenue to show how each expense contributed to income

Explore free resources for accountants and small businesses

Stay connected with industry trends, skill-building opportunities, and career insights by subscribing to our Career Chat newsletter on LinkedIn. Explore our Career Resources Hub to research career paths and assess your skills. Then, check out these free resources for accountants, bookkeepers, and small businesses:

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