Starting a business can feel like juggling flaming batons while riding a unicycle—on a tightrope. There are so many moving parts! Marketing, sales, customer service, operations… and then there’s the one thing that makes most founders suddenly want to fake a sneeze and disappear into the background: accounting.
But here’s the good news: the accounting cycle doesn’t have to be scary. In fact, once you know the steps, it’s more like a dance routine than a fire drill. And when your books are in order, you actually feel more in control of your business (and less like hiding under your desk when tax season rolls around).
So grab your coffee, and let’s walk through the 8 steps of the accounting cycle—made simple, founder-friendly, and yes, with a dash of humor.
Step 1: Identify and Record Transactions
Every cycle starts with the money stuff—aka transactions. Whether you’re buying new supplies, paying for a software subscription, or (yay!) making a sale, it all needs to be recorded. Think of this step as snapping a selfie of every single financial moment. No filters, just the truth.
Pro tip: Don’t wait until the end of the month to catch up—future-you will not appreciate that. Use tools like QuickBooks or Xero to automatically sync your transactions and save your sanity.
Step 2: Post to the Ledger
Once you’ve got your transactions recorded, they need to go into your ledger (aka the official “financial diary” of your business). Each transaction gets organized into categories like assets, liabilities, income, and expenses.
Imagine your ledger as a giant closet with labeled shelves—this is where your money stories live. And like any closet, if you shove things in randomly, you’ll regret it later.
Step 3: Prepare the Trial Balance
Okay, so you’ve sorted your transactions into the right cubbies. Now it’s time to make sure the math checks out. The trial balance is essentially a test run: you add up debits and credits to make sure they balance. If they don’t? Well, at least you found out now instead of explaining to the IRS why your numbers look like modern art.
Step 4: Make Adjusting Entries
This is the “housekeeping” step. Adjusting entries fix things like unpaid expenses, prepaid costs, or revenue you’ve earned but haven’t collected yet. It’s basically tidying up your books so that your financial picture is accurate.
Think of it like brushing your teeth before a date—you could skip it, but the end result might not be so great.
Step 5: Prepare the Adjusted Trial Balance
Here’s where you double-check that your adjustments didn’t throw your numbers off. This is your “final rehearsal” before the big show (aka financial statements). If your numbers balance here, you’re golden.
Step 6: Create Financial Statements
Cue the drumroll! This is the part everyone actually cares about—the reports. From your adjusted trial balance, you’ll generate:
- Income Statement (a.k.a. Profit & Loss): Did your business make money?
- Balance Sheet: What’s your business worth right now?
- Cash Flow Statement: Where’s the money moving?
These are the documents investors, banks, and sometimes even your mom want to see to know if you’re “doing okay.”
Step 7: Close the Books
At the end of your accounting period (usually monthly, quarterly, or yearly), you close out temporary accounts like revenue and expenses. Think of it as wrapping up a season of your favorite Netflix show. You clear the slate so the next season starts fresh.
Fun fact: This is where many business owners pop some bubbly. Closing the books means you survived another round.
Step 8: Rinse and Repeat
And just like laundry, you have to do it all over again. The cycle is ongoing because business doesn’t stop. The good news? Once you get into a rhythm, it really does become second nature. (And if it doesn’t, that’s where a bookkeeper like LadyTech comes in—so you don’t have to sweat it.)
Why This Matters (Besides Making Taxes Less Stressful)
Following the accounting cycle keeps your financials accurate, which helps you:
- Know if your business is actually profitable (instead of just hoping).
- Catch mistakes before they become disasters.
- Make smarter decisions about hiring, investing, or scaling.
- Sleep better at night, because yes, that matters too.
And here’s the best part: when you understand your numbers, you start feeling like the CEO of your business—not just the person wearing all the hats.
Final Thoughts: You’ve Got This
The accounting cycle might sound formal, but at the end of the day, it’s really just about keeping track of your money in a logical, repeatable way. And the truth is, when you understand your numbers, you’ll feel more confident as a business owner. You’ll be able to spot opportunities, pivot when needed, and celebrate the wins (with receipts to prove it!).
If all of this still feels overwhelming, don’t worry—that’s what LadyTech is here for. We help founders like you turn bookkeeping chaos into clarity, so you can spend less time crunching numbers and more time growing your dream.
Ready to make your accounting cycle less of a cycle of stress? Book a free consult today and let’s turn your numbers into your business’s superpower.
