How many steps comprise the accrual accounting cycle?

The accrual accounting cycle is an essential framework for understanding how financial transactions are recorded and reported over a specified period. It fundamentally outlines the steps needed to ensure that revenues and expenses are recognized when they occur, regardless of when cash is received or paid.

The process typically involves seven key steps:

1. Identifying transactions: Recognizing events that have a financial impact on the organization.
2. Recording transactions in journals: Making initial entries that detail the transactions using the double-entry bookkeeping method.
3. Posting to the ledger: Transferring the journal entries to the general ledger, where all accounts are maintained to prepare for the financial statements.
4. Preparing an unadjusted trial balance: Summarizing all accounts to ensure that the total debits equal the total credits, providing a preliminary check on the accuracy of the bookkeeping.
5. Making adjusting entries: These entries are necessary to account for accrued or deferred items, ensuring that revenues and expenses are recorded in the correct accounting period.
6. Preparing an adjusted trial balance: This step checks the accuracy of the accounts after adjustments have been made.
7. Preparing financial statements: Finally, the adjusted trial balance is used to create the primary financial statements, including the income