Accounting cycle
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The accounting cycle describes the process of recording, classifying, and summarizing business transactions. It involves sourcing documents, recording transactions in a journal, posting entries to ledgers, preparing a trial balance, and ultimately generating financial statements including a trading and profit/loss account and balance sheet. These steps ensure accuracy and equality between debits and credits.
Accounting cycle
- 1. *
- 2. • Accounting cycle is a sequence of accounting procedure which is used to record, classify and summarize the business transactions. *
- 3. Source document Recording in journal Posting in ledger Trial balance Financial statement
- 4. • A source document refers to includes any document that is received and issued against any business transactions, which is needed to be recorded in a journal. *
- 5. • The first step of accounting cycle is recording transactions in the journal. The any type of business transactions occurred are entered in the journal. *
- 6. • After recording the transactions in journal the debit and credit entries in account balances are posted from journal to ledger. *
- 7. • A trial balance proves and authenticates the equality of debit and credit entries in the ledger. *
- 8. Final accounts or financial statements can be divided in two parts:- 1. Trading and profit & loss account 2. Balance sheet *
- 9. • Trading account based on direct income and expenses. • A trading account represents either gross profit or gross loss. *
- 10. • Profit & loss account based on indirect income and expenses. • A profit & loss account represents either net profit and net loss. *
- 11. • Balance sheet is a combination of assets and liabilities. • A balance sheet represents the financial statement of accounts. *