The 8-Step Accounting Cycle

All Eight Steps

1. 1

   Identify & Analyze

   Look at source documents (invoices, receipts, bank statements) and determine which accounts are affected and by how much.

2. 2

   Record in Journal

   Write each transaction as a journal entry with debits and credits, in chronological order. This is the "book of original entry."

3. 3

   Post to Ledger

   Transfer each journal entry to the appropriate account in the general ledger, so every account has a running balance.

4. 4

   Unadjusted Trial Balance

   List all ledger account balances in a debit/credit column to verify they're equal. This catches posting errors but not missing entries.

5. 5

   Adjusting Entries

   Record accruals, deferrals, depreciation, and other end-of-period adjustments that haven't been captured yet. These ensure revenue and expenses land in the correct period.

6. 6

   Adjusted Trial Balance

   Re-list all balances after adjustments to confirm debits still equal credits before building financial statements.

7. 7

   Financial Statements

   Use the adjusted trial balance to produce the income statement, statement of owner's equity (or retained earnings), balance sheet, and statement of cash flows.

8. 8

   Close the Books

   Make closing entries to zero out temporary accounts (revenue, expenses, dividends/draws) into retained earnings or owner's capital, then prepare a post-closing trial balance to start the next period clean.