ACCOUNTING CYCLE
The Accounting Cycle is a series of steps which are repeated every reporting period. The process starts with making accounting entries for each transaction and goes through closing the books.
1.JOURNALS:
These are chronological records of transactions entered into by a business. Journals are that first basic entry of debit and credit for each transaction.
for example. At the end of the day, the sales of $4,000 for cash would be recorded in the general journal in this form:
Journal Format
Date | Particulars | L/F | Debit (Rs) | Credit (Rs) |
2010,15 December | Cash A/c | 4000 | ||
Sales A/c | 4000 | |||
Goods sold on cash |
2.LEDGER:
The ledger is a collective term for the accounts of a business. The accounts are in the shape of a ‘T’ and thus are often referred to as ‘T-accounts’. In this step we take all the debits and credits (journals) relating to one account let we take the example of bank and draw up an account for bank
Ledger Format:
Date | Particular | Debit | Credit | Balance |
Dec 15 | Capital | 15000 | 15,000 | |
Dec 16 | Banking Equipment | 5000 | 10,000 |
3.Trial Balance:
After posting all transactions from an accounting period, accountants prepare a trial balance to verify that the total of all accounts with debit balances equals the total of all accounts with credit balances.Below is an example of trial balance.
Trail Balance
Particulars | Debit | Credit |
Cash | 4,000 | |
Capital | 15,000 | |
Banking equipment | 5,000 |
4.FINANCIAL STATEMENTS:
A statement is a report. Financial statements are the most important reports of a business. These statements are prepared from the information in the trial balance. The purpose of these statements is to show the financial position, financial performance and cash flows of a business. Financial statements are usually prepared once a year.
Financial statements are:
1. Statement of Comprehensive Income
2. Statement of Financial Position
3. Statement of Cash Flow
4. Statement of Changes in Equity
5. Notes to the Accounts
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