It is the set of accounting records made in the different accounting books, prepared during the operations carried out by the company, demonstrating its performance during a financial year. The accounting cycle will be repeated in each fiscal year of the company, for as long as it remains in operation.
This exercise normally coincides with a calendar year, that is, if a company lasts 15 years in operation, in theory, there should be 15 repetitions of the accounting cycle, one for each year of the financial year.
For a new company, the accounting cycle begins with the study of its current situation and the opening of the accounting books (daily, major, inventory and annual accounts). For a business that has already been in business for a period of time, account balances carry over from period to period. Consequently, the accounting cycle begins with the beginning of account balances.
The accounting cycle produces the financial statements that investors use in their decision-making, since at the end of the cycle the economic-financial and equity situation of the company is demonstrated. How was its development during the financial year and what were the results.
The entire conglomerate of data generated during the financial year is shown through financial statements, which summarize the financial behavior of the company, which are grouped into what is known as annual accounts.
Finally, it should be noted that the accounting cycle is structured in eight phases. In the first place, the state of the current situation of the company is made, where the amount of assets, liabilities and the capital that is owned are expressed. Second, the accounting is opened through the journal, which chronologically records the operations carried out by the company. Third, the general ledger is formed, which records all the entries made in the journal in a classified manner, in order to obtain the balances that will be used to carry out the trial balance, which corresponds to the fourth step, which summarizes the data produced by the journal and the general ledger, checking the numerical equality that must exist.
Next, the adjustment entries are made, for which it is necessary to end the fiscal year, in them the real balance of the accounts that were involved in the accounting of the company are reflected, such as depreciation, amortization, among others. Then, the worksheet is made, which allows the public accountant to present the accounting process in a summarized and analytical way. Subsequently, the closing entries are made, which have the purpose of grouping the accounts, either in those that generate expenses or in those that generate income, to determine if the accounting period generated a loss or profit. Finally, the financial statements are prepared that reflect the economic and financial situation of the company, reflecting everything that makes up the organization.
