Financial accounts are prepared through a systematic process called the accounting cycle. This cycle involves several steps:
1. Transaction Identification: Recognizing economic events that affect the business. 2. Journal Entries: Recording transactions in the journal. 3. Ledger Posting: Transferring journal entries to the ledger. 4. Trial Balance: Preparing a trial balance to ensure debits equal credits. 5. Adjusting Entries: Making adjustments for accrued and deferred items. 6. Financial Statements: Preparing financial statements, including the income statement, balance sheet, and cash flow statement. 7. Closing Entries: Closing temporary accounts to prepare for the next accounting period.