Question

What is accounting cycle? Outline the basic steps included in accounting cycle.

Answer 1

Mean by An Accounting Cycle/Process:
The accounting cycle, also known as accounting process, is a series of procedures involved in writing the books of accounts of business transactions which occurred on regular and routine basis , sometimes as because the business involve routine transactions such as purchase sales collection and repayment of debts. The whole set of process of recording classifying summarising adjusting the balances from beginning of the year to end of the year and freshly carry forwarding the amount closing balance to opening balance to the Next beginning of the Year. This entire process is called Accounting Cycle/ process.

They are 8 types of steps involved in the accounting cycle,
1. Transactions:
Transaction means an activity which occurred with exchange of money or even without exchange money may be payable at the later date, with an event or activity which may be sale, purchase, exchange of assets ,deposit or payout of money by the company Financial transactions start the process. Transactions can include the sale or return of a product, the purchase of supplies for business activities, or any other financial activity that involves the exchange of the company’s assets, the establishment or payoff of a debt, or the deposit from or payout of money to the company’s owners.
2.Journal entries:
Recording the transaction with chronological order with one debit and one is credit
3.Posting:
After Posting the journal entries, all such entries will be posted to the respective ledger accounts by opening of each of ledger in T-form
4.Trial balance:
Closing Balance of each ledger will put into a table form in order to make all totals are correct , it is helpful in detecting missing entries, is there any mistake or missing of entry is then the balances will not be tallied on both sides of debit and credit.
5.Worksheet:
It is used for some sort calculations such Depreciation, Interest rates, Estimated Tax, and so
6.Adjusting journal entries:
The entries shall adjusted at the end of each year as belonging to prepaid rent, unpaid rent, unpaid liabilities in order to meet the matching concept.
7.Financial statements:
It consists of Balance sheets and Income Statement, Cash flow statements and notes to accounts
8.Closing the books:
All Books of accounts gets closed at the end of each accounting Year by applying different types of concepts and accounting principles such as Matching concept and going concern and so,.and These books will again open at beginning of next year at the closing balances of last year