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How does the accounting cycle work? The accounting cycle is a systematic process that organizations follow to record, analyze, and report financial transactions. It typically involves several key steps. Firstly, transactions are identified and recorded in journals, classifying them based on type. Subsequently, this information is posted to the general ledger, providing an overview of the organization's financial position. The next steps involve adjusting entries, ensuring that accounts accurately reflect the financial reality. This is followed by the preparation of financial statements, summarizing the organization's performance. Once reviewed, closing entries are made to reset temporary accounts for the next cycle. The accounting cycle serves as a comprehensive framework for financial management, guiding businesses in maintaining accurate records, complying with regulations, and facilitating informed decision-making. It ensures transparency and accountability in financial reporting, playing a fundamental role in the financial health and success of an organization.