2.6: The Accounting Cycle

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learning objective

LO5 – Define the accounting cycle.

In the preceding sections, the January transactions of Big Dog Carworks Corp. were used to demonstrate the steps performed to convert economic data into financial information. This conversion was carried out in accordance with the basic double-entry accounting model. These steps are summarized in Figure 2.6.1.

Figure \(\PageIndex{1}\): Illustrating the Steps in the Accounting Cycle

The sequence just described, beginning with the journalising of the transactions and ending with the communication of financial information in financial statements, is commonly referred to as the accounting cycle. There are additional steps involved in the accounting cycle and these will be introduced in Chapter 3.