> ## Documentation Index
> Fetch the complete documentation index at: https://docs.lerian.studio/llms.txt
> Use this file to discover all available pages before exploring further.

# The accounting cycle

> How transactions, journal entries, the ledger, trial balance, and financial statements fit together as one repeating cycle that keeps the books trustworthy.

You've met the pieces one at a time: [debits and credits](/en/start-here/fundamentals/accounting/debits-and-credits), [journal entries](/en/start-here/fundamentals/accounting/journal-entries), the [chart of accounts](/en/start-here/fundamentals/accounting/chart-of-accounts), the [financial statements](/en/start-here/fundamentals/accounting/financial-statements). The **accounting cycle** puts them in a line. It is a routine that repeats. It turns a single real-world event into a report you can trust, then starts over.

## One event, all the way through

***

Every figure on a financial statement started life as something tiny and concrete: a sale, a payment, a bill. The cycle is the path that event travels, step by step, until it shows up in a report.

* **Transaction**: something happens. A customer pays, you cover the rent, a bill arrives.
* **Journal entry**: you write it down as matching debits and credits, so you record both sides of the movement.
* **Ledger**: you sort each entry into the right account, so every account gathers its own running history.
* **Trial balance**: you add up all the accounts and check that total debits still equal total credits.
* **Financial statements**: the balanced totals form the Balance Sheet, Income Statement, and Cash Flow Statement.

Then the cycle repeats for the next transaction, the next day, the next period.

```mermaid theme={null}
flowchart LR
  T["Transaction<br/>something happens"] --> J["Journal entry<br/>debits = credits"]
  J --> L["Ledger<br/>sorted by account"]
  L --> TB["Trial balance<br/>check it still balances"]
  TB --> FS["Financial statements<br/>the reports"]
  FS -.->|"next transaction · next period"| T
  classDef bal fill:#fff8e1,stroke:#f4b400,color:#333;
  class TB,FS bal;
```

## Walking one transaction around the loop

***

Say a customer pays you \$2,000 for a sale you make right then, so you earn the revenue at that moment. Follow it through:

1. **Transaction.** The sale happens and the customer pays.
2. **Journal entry.** You record it: **Cash** debited \$2,000, **Revenue** credited \$2,000. Debits equal credits, so the entry balances.
3. **Ledger.** That \$2,000 debit joins the running history of the Cash account. The \$2,000 credit joins the Revenue account. Do this for every entry and each account always knows its own total.
4. **Trial balance.** Add every account's debits and credits across the whole book. If the two grand totals match, the records are internally consistent, a quick health check before you report anything.
5. **Financial statements.** The Cash balance feeds the Balance Sheet. The Revenue feeds the Income Statement. It is the same \$2,000, now part of the big picture.

The cycle invents nothing new along the way. Each step reorganizes the same balanced movement into a more useful shape. It goes from a single event, to a record, to a sorted history, to a verified total, to a readable report.

## Why the order matters

***

Each step depends on the one before it, so the sequence never changes:

* You can't sort an entry into the **ledger** until you've written the **journal entry**.
* The **trial balance** is only meaningful once every entry has landed in the ledger.
* The **financial statements** are only trustworthy once the trial balance confirms debits equal credits.

The balancing rule from [double-entry](/en/start-here/fundamentals/accounting/double-entry-bookkeeping) rides along at every stage. A mistake therefore shows up early (at the trial balance) instead of hiding inside a finished report.

<Note>
  **See also in Core Banking**

  See how this whole flow lands in a real ledger system in [Designing your ledger plan](/en/start-here/fundamentals/core-banking/designing-your-ledger-plan) and [Where to go next](/en/start-here/fundamentals/core-banking/where-to-go-next).
</Note>

## Next steps

***

<Note>
  **Next up**

  See how these ideas map onto a real ledger system in [Accounting in Lerian](/en/start-here/fundamentals/accounting/accounting-in-lerian).
</Note>