What is Accounting Cycle?
The accounting cycle is the standardized sequence of procedures performed during each accounting period, from the moment a business transaction occurs to the issuance of the financial statements and the closing of the books. It ensures completeness, accuracy, and comparability of accounting information across periods.
How It Works
- Identify and analyze transactions from source documents.
- Record transactions in journals (general or special).
- Post journal entries to the general ledger.
- Prepare an unadjusted trial balance.
- Post adjusting entries and prepare an adjusted trial balance.
- Prepare the financial statements.
- Post closing entries to zero out temporary accounts.
- Prepare a post-closing trial balance to confirm equality.
Saudi Context
Saudi companies using accounting software such as Qoyod automate most of the accounting cycle, particularly journal posting, trial balance generation, and statement preparation. ZATCA’s electronic invoicing data feeds journals directly, while SOCPA-aligned IFRS dictates the format of the statements produced at the end of the cycle.
Example
A trading company records the sale of inventory in the sales journal, posts to the customer’s ledger and the inventory ledger, prepares an unadjusted trial balance at month end, posts depreciation and prepaid adjustments, prepares the P&L and balance sheet, then closes revenue and expense accounts to retained earnings before starting the next period.