Accounting Cycle Or Accounting Process
Accounting Cycle Or Accounting Process:-
“An accounting cycle is a complete sequence of the accounting process, that begins with the recording of business transactions and ends with the preparation of final accounts. The accounting cycle is also known as the accounting process”.
When a businessman starts his business activities, he records the day-to-day transactions in the Journal.
From the journal the transactions move further to the ledger where accounts are written up. Here, the combined effect of debit and credit pertaining to each account is arrived at in the form of balances.
To prove the accuracy of the work done, these balances are transferred to a statement called trial balance.
Preparation of trading and profit and loss account is the next step.
The balancing of profit and loss account gives the net result of the business transactions.
To know the financial position of the business concern balance sheet is prepared at the end. These transactions which have completed the current accounting year, once again come to the starting point – the journal – and they move with new transactions of the next year.
Thus, this cyclic movement of the transactions through the books of accounts is called the accounting cycle. The accounting cycle is a continuous process.
1. Identification of Financial transactions and events;
2. Measurement of transactions in terms of money;
3. Recording the Financial transactions in journal or subsidiary books;
4. Classifying the business transactions through ledger;
5. Summarising the business transactions by preparing Trial balance, Trading Account and profit and loss account and Balance sheet;
6. Analysing and Interpreting the financial data;