Accounting cycle is a step-by-step process of recording, classification and summarization of economic transactions of a business.
It generates useful information in the form of financial statements including income statement, balance sheet, cash flow statement and statement of changes in equity.
The time period principle requires that a business should prepare its financial statements on periodic basis.
Therefore, cycle is followed once during each accounting period.
Accounting cycle starts from the recording of individual transactions and ends on the preparation of financial statements and closing entries.