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The accounting cycle, also commonly referred to as accounting process, is a series of
procedures in the collection, processing, and communication of financial information.
accounting involves recording, classifying, summarizing, and interpreting financial
information.
Financial information is presented in reports called financial statements. But before they
can be prepared, accountants need to gather information about business transactions,
record and collate them to come up with the values to be presented in the reports.
The cycle does not end with the presentation of financial statements. Several steps are
needed to be done to prepare the accounting system for the next cycle.
Accounting Cycle Steps
1. Identifying and Analyzing Business Transactions
The accounting process starts with identifying and analyzing business transactions and
events. Not all transactions and events are entered into the accounting system. Only
those that pertain to the business entity are included in the process.
For example, a personal loan made by the owner that does not have anything to do with
the business entity is not accounted for.
The transactions identified are then analyzed to determine the accounts affected and
the amounts to be recorded.
The first step includes the preparation of business documents, or source documents. A
business document serves as basis for recording a transaction.