Accounting Cycle

·           Identification of Transaction – Only those transaction should be recorder in the books that are in monitory form or are of financial nature this must comply with money measurement concept of accounting principle.

•          Recording of Transaction- Accounting is the art of recording business transaction according to some specific rules.

Business size (A) Small- transaction is not large in quantity so JOURNAL is prepared to enter the transaction. But

(B)Big- when the transaction are large in quantity then journal are further subdivided in various subsidiary book.

•          Posting to Ledgers- after recording in Journal or Various subsidiary book the transaction are classified. Classification is the process of grouping the transaction of one nature at one place, separate accounts are opened in the ledger book in the name of supplier, consumer etc. Likewise separate accounts are opened for purchase, sales, asserts, liability, income, expenditure etc.

•          Trial balance –Trial balance is a statement which is prepared with the help of debit and credit balance of ledger accounts to test the arithmetic accuracy.

•          Creation of Final Statement- after checking the accuracy of the books of accounts the proprietor or stake holders of the business would like to know the position of the business that is profit or loss earned during a particular period, which is the sole motive of any business. Hence to determine financial position we prepare (a) Trading Account (b)Profit & loss Account (c)Balance Sheet.

POINTS TO REMEMBER