There is a final step in the accounting cycle not shown above, which is the closing off of accounts (or closing entries), which are done at the end of each year along with the production of the financial statements.
This involves closing out temporary accounts (incomes and expenses), and transferring their balances through a profit account into the owners equity (reserves).
It is important to note that these days many businesses use computerized accounting systems, and so the accounting cycle is largely automated.
This means that the bookkeeper or accountant simply enters the basic data about a transaction, and the posting is then automatically done to the relevant accounts and through the trial balance to the financial statements. Temporary accounts are also automatically closed off at the end of the period.
Additionally, errors occur less often with computerized systems, but even when these do occur, the bookkeeper or accountant can make a quick adjusting entry and watch as the correction is automatically carried through to the revised T-accounts, trial balance and financial statements.
But even with this automation, it is still important that bookkeepers and accountants understand the accounting cycle and its various stages.
Okay, that's it for our tutorial on the accounting cycle.
Hopefully you now understand the big picture of accounting and the various stages of work that need to be done.
When you're ready, click on any of the links above to go through a lesson on a specific topic.