Accounting Cycle Closure


Like everything else, an accounting cycle also has a specific time when a business owner must close it down. This is a necessary step in keeping a company’s accounting system free from complexities, but not all business owners understand this.

Closing an accounting cycle helps you smooth out any wrinkles and define the balances left at the end of the process. It allows you to stay coordinated with all the stakeholders.

When you begin closing an accounting cycle, you must follow specific steps. It would be best to go about it systematically to avoid any inconveniences later. But before jumping into that topic, we must first understand an accounting cycle.

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What is an Accounting Cycle?

An accounting cycle records all the company’s financial data saved, analyzed, and recorded over time. In an accounting cycle, all the data, including payrolls, investments, payments to be made, profits, and any losses the business may have sustained in a specified period.

It assists a business owner in identifying all transactions revolving around the business, helping them analyze them, sort them out, and highlight the trial balance. Keeping the company’s finances clean and clear through an accounting cycle would allow the business owner far more than they can imagine.

Closing an Accounting Cycle and Why It Is Important 

The process of closing all accounting entries begins once an accounting cycle ends. Each accounting cycle stays in use for a specific amount of time before it is time to bring it to a conclusion. The job of closing entries is to clear out any dues and balances before a new cycle begins.

Clearing any due payments means that the balances are presented clearly, so no doubts are left in the equation. Closing an accounting cycle is one of the essential parts of having a successful accounts system for your business. Although accounting is based on sorting and keeping the finances organized, clearing dues and balances is an equally major step that would keep the company in excellent financial health.

Closing entries also highlight the company’s progress. Once the cycle is closed, all remittances are calculated, which can then be compared to the past year. It would be vital for the business owner to conduct their expenses if they know their company’s performance.

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Steps to Close an Account Manually

  1. The first step in closing entries for an accounting cycle is for the accountant or business owner to identify and locate all the revenue accounts under the company’s name.
  2. Once located and identified, the accountant must calculate each entry made in the accounting journals for each account so that you can calculate the credit and trail balance.
  3. At this step, the accountant is expected to return the accounts to zero credit so that you can clear the report.
  4. The next step would be to locate all accounts that deal with expenses. Once these accounts have been discovered, as with the revenue accounts, the accountant must calculate each entry for all the expense accounts to bring the credit down to zero.
  5. The calculations then move towards the income summary accounts. If there is a credit balance by the time the charges are cleared, that would mean that the company has profited. But if the balance is in deficit, the company has suffered a loss during that cycle.
  6. Finally, the accountant must turn their attention towards the dividend as well as the savings accounts. Once these have been cleared, the company’s net income can be calculated.

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Let the Software Do the Job

With the world undergoing a technological revolution, life has never been easier. Companies now invest in accounting and financial software to cater to their needs. The software does the job without making you go through the hassle of all the calculations, making the situation complex. Now is the time to invest in accounting software to make the job easier and save you the cost of employing an accountant.


In conclusion, closing an accounting cycle is crucial for maintaining financial clarity and organization. It ensures that all dues and balances are cleared, highlighting the company’s progress and aiding in better decision-making. Streamlining this process, whether through manual steps or software solutions, is essential for business success in the modern era. 

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