Accounting Cycle
Definition
The repeating sequence of steps that turns transactions into financial statements: recording journal entries, posting to the ledger, preparing a trial balance, making adjustments, and producing and closing the statements each period.
Related Terms in Accounting Principles
Accounting Period
The span of time over which financial performance is measured and reported, such as a month, quarter or year. Consistent periods make results comparable across time.
Accrual vs Cash Basis
The two main accounting methods. Accrual basis records revenue when earned and expenses when incurred; cash basis records them only when money moves. Accrual gives a truer picture of performance, while cash basis is simpler.
Conservatism Principle
The accounting convention of recognising expenses and liabilities as soon as they are probable, but recognising revenues and gains only when reasonably certain. It avoids overstating the financial position.
Consistency Principle
The convention that a business applies the same accounting methods from period to period, so results are comparable over time. Changes are allowed but must be disclosed and justified.
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