What Are the Nine Accounting Steps in the Accounting Cycle

Nine Steps of the Accounting Cycle occur in every "reporting period" and are used in order to determine the verity of transactions and to prepare for both staff personnel and clients the financial statements for that period (Miller, 2015). This paper will discuss these Nine Steps in detail and show why they are important as well as what happens when inaccuracies arise. The first step is to Analyze the Transaction.

This means that one preparing the report needs to collect all the relevant data related to that account or balance sheet in which transactions and events transpired. The second step is to place all the transactions (record them) in the Journal. This means recording everywhere that money moves, in and out.

This is important to show what the money is doing -- and if it is not recorded properly, there will be an imbalance in the accounting, and the entire ledger will be off, which means that the entire book will have to be gone through again in order to identify what was missed or mistakenly reported. Not doing this can cause serious accounting problems, which can be costly.

The third step is to post entries into the Ledger, as stated above -- this means transferring from the Journal accurately to the Ledger. The general ledger is the "company's main accounting records" -- an official record of "assets, liabilities, equity, revenues and expenses" (General Ledger, 2015). The fourth step is to prepare the unadjusted trial balance. This is the essential list of accounts/balances at any given point in the history of the period.

This step is necessary before proceeding to the placing of the adjusted entries and if it is skipped, the adjusting entries will be more difficult to place, because the main purpose of the trial balance is to show that the "debits equal the credits" (Steps to the Accounting Cycle, 2015). The fifth step is to adjust entries accordingly, meaning that it is necessary at this point to make sure the balances to their proper amount along with the expenses. This is critical for maintaining the integrity of the accounting report.

The sixth step is then to prepare an adjusted trial balance and it allows the accountant to make sure that the debits do in fact match the credits and it is also the key go-to for preparing the financial report. The seventh step is to organize the accounts into the report by establishing them in the following order: first, the income statement, followed by the statement of retained earnings, then the balance sheet, and finally the statement of cash flows (Steps to the Accounting Cycle, 2015).

This order is necessary because one statement provides information for the next and if it is not ordered correctly the necessary information is not provided as it should be. The eighth step is to close the books: this means to prepare closing entries for the next period to build on. This is a looking-forward step that makes the next reporting cycle possible. The ninth and last step is to prepare a post-closing trial balance, which is used to finally verify the accounts in the books.

This preparation looks only at debit/credit balances for accounts that are permanent and to verify that temporary accounts.