Accounting cycle Made by: Yashvi Shah

Accounting cycle Accounting cycle is a step-by-step process of recording, classification and summarization of economic transactions of a business.

Business Transactions The accounting cycle Business Transactions Journal Ledger Final accounts Trial Balance

Business transactions Business transactions are those which affect a business financially. Any event which does not affect the business financially is not recorded in the accounting system. All business transactions have 2 aspects (debit and credit) Business transactions include: drawings, capital, purchases, sales, returns, expenses, incomes, loans, payables and receivables, etc.

Transaction Debit Credit Bought goods on credit from Mr. Y Purchases Mr. Y Received cash from Mr. X of $1200 Cash Mr. X Returned goods to Mr. Y Mr.Y Purchases returns Bought office equipment by cheque Office equipment Bank

Journal (Books of prime entry) Cash book- record all cash transactions (including bank) Sales journal- record goods sold on credit Sales returns journal- record sales returns Purchases journal- record goods bought on credit Purchases returns journal- record purchases returns General journal- ??? Record opening entries, closing entries, correction of errors and assets bought and sold on credit record opening entries, closing entries, correction of errors and assets bought and sold on credit

Process of transferring journal to ledger Ledgers Before ledgers are prepared, posting needs to be done. Posting- ??? Each transaction from journals is posted in two different ledgers. Under one ledger, the transaction will be in the credit column, and under another ledger, the same transaction will come under the debit column. Process of transferring journal to ledger

Purchases returns ledger Ledger Example: Goods returned to Mr. X for cash $500 Cash Purchases returns Date Details $ 1.1.15 Purchases returns 500 Cash ledger Date Details $ 1.1.15 Cash 500 Purchases returns ledger

Trial Balance Trial balances are used to check the arithmetical accuracy of ledgers. It is a listing of all of the accounts in the general ledger and their balances. The debit balances are entered in one column and the credit balances are entered in another column. The debit and credit column must equal, however if this is not the case, then a suspense account can be added which will state the difference.

Trial balance: what comes under debit and credit? Assets Liabilities Expenses Incomes Losses Gains Prepaid expenses Outstanding expenses Drawings Capital

Final accounts Trading account- used to calculate gross profit Profit and loss account- used to calculate net profit Balance Sheet- used to find the financial position Cash flow statement- reports the cash generated and used during the time interval specified Changes in equity- contains the change in owners equity over an accounting period.