starter · Lesson 6 · 8 min
The accounting cycle
Identify, record, post, trial-balance, adjust, statements, close. Cloud software runs the middle continuously.
Nine steps, still true
- Identify the transaction and grab the source document.
- Record it (invoice, bill, spend/receive money, or journal).
- Post to the ledger (automatic in Xero and QBO).
- Unadjusted trial balance — every account, debit or credit column, columns equal.
- Adjusting entries — accruals, prepayments, depreciation, inventory, payroll true-up.
- Adjusted trial balance.
- Financial statements — P&L, Balance Sheet, Cash Flow, plus aged A/R and A/P.
- Closing entries — zero income and expense into equity (QBO does this at year-end; Xero shows Current Year Earnings until you or the accountant journal it).
- Post-closing trial balance — balance sheet accounts only.
What changes in the cloud
Steps 2–4 happen every time you reconcile a bank line or approve a bill. Month-end is steps 5–7, plus reconciling every bank, card, loan, and clearing account, plus locking the period. Year-end adds tax journals, depreciation true-up, 1099 review, and a lock date that includes the year.
Cash vs accrual sits here
The cycle above is accrual: you record revenue when earned and expenses when incurred. Cash basis records them when money moves. US small businesses often keep accrual books (especially if they have inventory, or want AR/AP discipline) and may file tax returns on cash. Xero and QBO can produce both views from the same ledger if invoices and bills are used properly. They cannot invent invoices you never raised.
Check
Choices shuffle each visit. Misses send you back to the section — Look back clears the quiz so you can try again.
Choose an answer, then check.
Month-end close in Xero is mostly:
Practice: Where are we in the cycle?