The Accounting Cycle

The following steps summarize the general accounting cycle:

1. Transactions are first recorded in journals. The process of recording transactions into journals is called journalizing. Each transaction is recorded as a journal entry.

2. Journal entries are posted to the general ledger. This process is called posting.

3. Adjusting entries are made (journalized) and posted to the general ledger.

4. A trial balance can now be created, which shows all accounts and their up-to-date balances. A balance is the monetary amount of the transaction, along with the information of whether this transaction is a debit or credit.

   A trial balance is not the same as a balance sheet, which is a formalized financial statement.

5. Formalized financial statements are written.

6. Closing journal entries are made (journalized) and posted to the ledger. Often, another trial balance, called the "after-closing" or "post-closing" trial balance, is prepared with closing journal entries.