Accounting Cycle Transactions: First of all, monetary transactions are identified and their required documents are collected. Recording: After identifying monetary transactions, they are recorded regularly in a prime book called ‘journal’. In the case of big concerns, such transactions are recorded in a number of books of original entry called ‘Subsidiary books’. Classification: After making entries in journal or subsidiary books, they are posted to the appropriate accounts in the ledger periodically. Then, after, their balances are determined. Summarizing: In this step, a summary called ‘trial balance’ is prepared to check the arithmetical accuracy of the entries made in the ledger accounts. After this, final accounts i.e. trading, profit and loss account and balance sheet are prepared as summary reports. Interpretation and evaluation: In this step, the data found in trading profit and loss account and balance sheet are analyzed to draw conclusions about the profitability and financial positions of the business. Then after, they are interpreted. Communication: Finally, conclusions are communicated to the concerned parties. In conclusion, the accounting cycle is a series of steps performed during the accounting period to analyze record, classify, summarize and report useful financial information for the purpose of preparing financial statements.
Posted on: Fri, 04 Oct 2013 03:14:27 +0000
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