Last time we learned the accounting equation: Assets = Liabilities + Owner's Equity. But how do businesses actually use this equation to create financial reports?

That's where the accounting cycle comes in - a systematic process every business follows.

Engagement Message

What do you think happens between recording transactions and creating financial statements?

The accounting cycle is like a recipe that businesses follow every period (monthly, quarterly, or yearly). It transforms raw transaction data into organized financial statements.

Think of it as turning scattered puzzle pieces into a complete picture.

Engagement Message

Why do you think businesses need a systematic process like this?

Without a systematic process, businesses would have chaos! Imagine trying to track hundreds of transactions, payments, and sales without any organization.

The accounting cycle ensures nothing gets missed and everything ends up in the right place.

Engagement Message

Can you think of what might go wrong without a systematic approach?

The accounting cycle has several key phases: Record transactions, Make adjustments, Prepare statements, and Close the books.

Each phase builds on the previous one, like steps on a staircase leading to complete financial reports.

Engagement Message

Which phase do you think would be the most challenging?

Here's the beautiful part: every transaction you record affects the accounting equation we learned about. The cycle ensures these effects flow correctly into financial statements.

Your daily transactions eventually become the income statement, balance sheet, and other reports!

Engagement Message

Name one financial statement that daily transactions eventually feed into.