how the accounting cycle works
the accounting cycle is a methodical set of rules that can help ensure the accuracy and conformity of financial statements computerized accounting systems and the uniform process of the accounting cycle have helped to reduce mathematical errors today most software fully automates the accounting cycle which results in less human effort and errors associated with manual processing there are eight steps to the accounting cycle an accounting cycle is used by most but not all businesses sole proprietorships other small businesses and entrepreneurs may not follow it timing of the accounting cyclethe accounting cycle is started and completed within an accounting period the time in which financial statements are prepared accounting periods vary and depend on different factors however the most common type of accounting period is the annual period during the accounting cycle many transactions occur and are recorded at the end of the fiscal year financial statements are prepared and are often required by government regulation for example public entities are required to submit financial statements by certain dates all public companies that do business in the u s are required to file registration statements periodic reports and other forms to the u s securities and exchange commission 1 therefore their accounting cycles are tied to reporting requirement dates accounting cycle vs budget cyclethe accounting cycle is different from the budget cycle the accounting cycle focuses on historical events and ensures that incurred financial transactions are reported correctly alternatively the budget cycle relates to future operating performance and planning for future transactions the accounting cycle assists in producing information for external users while the budget cycle is mainly used for internal management purposes 