Bookkeeping Cycle

 
Financial Bookkeeping Cycle

The bookkeeping cycle is a series of outline steps setting out the process required for a typical
small business to record its financial transactions.
 
The bookkeeping cycle will vary from business to business but the general steps to explain the
bookkeeping cycle remain the same and can be seen in the illustration.
Steps in the Bookkeeping Cycle
 
1. The bookkeeping cycle starts with the day to day transactions arising from the trading
activities of the business for the period.
2. These transactions are recorded into the journal either directly or from the day books.
3. The ledgers are posted from the journal.
4. The ledgers form the complete double entry bookkeeping system, and a trial balance is
extracted from them to verify the accuracy and correctness of the postings. If the total debits
are equal to the total credits, then the books (ledgers) are said to balance.
5. The trial balance is used to prepare the income statement.
6. Following the income statement, the trial balance continues to be used to prepare the
balance sheet at the end of the accounting period (closing balance sheet).
7. The closing balance sheet becomes the opening balance sheet for the next accounting
period, and the bookkeeping cycle is now complete.