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    Accounting Cycle

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    muhammad.16032.ac
    The accounting cycle outlines the steps an organization follows to record financial transactions, prepare financial statements, and ensure an accurate accounting of revenues, expenses, assets, and liabilities over a set period of time. It involves recording business transactions, posting to ledger accounts, preparing an adjusted trial balance, and using that data to generate key financial statements like the income statement and balance sheet. Completing the full cycle provides oversight of the organization's financial position and performance.

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    Accounting Cycle

    Uploaded by

    muhammad.16032.ac
    8 views21 pages
    The accounting cycle outlines the steps an organization follows to record financial transactions, prepare financial statements, and ensure an accurate accounting of revenues, expenses, assets, and liabilities over a set period of time. It involves recording business transactions, posting to ledger accounts, preparing an adjusted trial balance, and using that data to generate key financial statements like the income statement and balance sheet. Completing the full cycle provides oversight of the organization's financial position and performance.

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    The accounting cycle outlines the steps an organization follows to record financial transactions, prepare financial statements, and ensure an accurate accounting of revenues, expenses, assets, and liabilities over a set period of time. It involves recording business transactions, posting to ledger accounts, preparing an adjusted trial balance, and using that data to generate key financial statements like the income statement and balance sheet. Completing the full cycle provides oversight of the organization's financial position and performance.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    8 views21 pages

    Accounting Cycle

    Uploaded by

    muhammad.16032.ac
    The accounting cycle outlines the steps an organization follows to record financial transactions, prepare financial statements, and ensure an accurate accounting of revenues, expenses, assets, and liabilities over a set period of time. It involves recording business transactions, posting to ledger accounts, preparing an adjusted trial balance, and using that data to generate key financial statements like the income statement and balance sheet. Completing the full cycle provides oversight of the organization's financial position and performance.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 21

    ACCOUNTING CYCLE

    TAHA JAMAL
    DEFINITION
    • It is the process which covers the whole
    accounting process/procedure which an
    organization has to follow in order to have a
    financial check and balance on the firm
    • It also tells the profitability and the worthiness
    of the firm as well when the cycle is completed.
    CONTENTS
    • Cycle has the following contents
    Balance Business General
    Sheet Transaction Journal
    General
    Ledger
    Income
    Statement
    Adjusted Trial
    T/B Adjustments Balance
    BUSINESS TRANSACTION
    • All the transactions related to business activities
    like making of sales and purchases, acquiring
    assets, settlement of liabilities, expenses and
    earning are accounted
    GENERAL JOURNAL
    • It is the primary book of account where all the
    business transactions are recorded at first. Each
    transaction has its 2 effects
     Debit
     Credit
    • The recording is called General Entry, entries are
    dated
    GENERAL LEDGER
    • It is the head wise posting of all the pre recorded
    general entry related to relevant account.
    • All the timely posted amounts are at the end of
    the month are first balanced and then later closed.
    • Closing of one month balance of one head would
    be the opening of another month.
    • Account is in ‘T’ shape that’s why it is also called
    T-Account.
    ◦ _________________________________
    Debit Side Credit Side
    TRIAL BALANCE
    • It is the list of balances which are derived from
    the ledger accounts of the related heads.
    • The closing balances of every ledger account are
    reported here
    • Debit balances are on Debit side and Credit
    balances are on Credit side.
    • Assets and Expenses appear on Debit Side where
    as Liabilities, Income and Capital are on credit
    side.
    Contd.
    • Presentation of Trial Balance is:
    S. No. Title of Account Debit Credit
    1 Cash 50000
    2 Loan 10000
    3 Capital 30000
    4 Sales 20000
    5 Salaries 10000
    . . 60000 60000
    . .

    • The balances of both debit and credit side should


    be equal.
    ADJUSTMENTS
    • There are certain events which are failed to
    appear in trial balance due to following reasons:
     Events are recorded at the end of the year/ period,
    like depreciation and bad debts.
     Adjustments of prepayments and accruals should be
    made at the year end.
     Stock taking is done at the end of the period.
    ADJUSTED TRIAL BALANCE
    • After making adjustments in a trial balance a
    new trial balance has been drafted, which is
    called adjusted trial balance.
    • The adjustments are made in revenues and
    expenses and hence the balance in the related
    accounts are changed
    FINANCIAL STATEMENTS
    • After arriving at adjusted trial balance the
    ending result is to make financial statements of
    the organization. There 2 types of statement
    which are usually constructed:
     Income Statement
     Balance Sheet
    Income Statement Balance Sheet
    It shows the profitability of the It shows the financial strength
    firm. Its components are: of the firm. Its components are:
    Revenues, Costs and Expenses Assets, Liabilities and Capital
    OTHER FINANCIAL STATEMENTS
    • There are other statements which are also come
    under the head of financial statements, they are:
     Cash flow Statements.
     Retained Earning Statements.
     Statement of Changes in Working Capital.
    ACCOUNTING CYCLE FOR NEXT PERIOD
    • Now again the accounting cycle starts for the
    next period and the whole process will repeat
    once again in the same sequence.
    • There is also the need of previous balances of
    those heads which are not closed previously and
    must be carried down in the new accounting
    period. They are assets, liabilities and Capital.
    RULES OF DEBIT AND CREDIT
    • If the asset and expenses are increased they are
    debited and if they are decreased then credited.
    • If capital, liabilities and revenues are increased
    they are credited and if decreased then debited
    • E.g. if cash is paid for purchase of furniture it
    means that Furniture is increasing in business
    and cash is decreasing from business.
    APPLICATIONS OF RULES
    • Rules of debit and credit are applied in recording
    of transactions in the books of accounts, general
    ledger and trial balance
    • Normal balances of Assets and Expenses appear
    at Debit side.
    • Normal balances of Liabilities, Capital and
    Revenues appear at Credit side.
    PRACTICAL ACCOUNTING
    • Now a days manual accounting has been
    obsolete and all the companies are now
    performing computerized accounting by using
    different soft wares.
    • The most common accounting soft wares are:
     Quick Book
     Peachtree
     Auricle
     Customize soft wares as per the desire of client.
    4 STEP ANALYSIS
    • For any transaction there are four steps to
    analyze it
     Head of Account
     Nature of Head
     Increasing or Decreasing
     Debit or Credit
    Example: Investment in Business
    1 Cash Investment
    2 Asset Capital
    3 Increase Increase
    4 Debit Credit
    CLASS ACTIVITY 1
    • Conduct four step analysis of the following
    transactions:
     Cash investment in business
     Purchases of Furniture on account
     Sales on account
     Purchase of Merchandise on cash
     Received cash from customers
     Deposited cash into bank
     With draw cash for office use
     Paid salaries to employee
    ANALYSIS BY ACCOUNTING EQUATION
    • The analysis of transactions is also conducted
    with the help of accounting equation in two
    ways:
     Increase, Decrease, No Effect
     Monetary verification of Accounting Equation
    CLASS ACTIVITY 2
    • Following are the transactions related to Murtaza
    Company for the month of Jan, 20__
     Started business with cash investment of Rs 200000
     Purchased merchandise for Rs 40000 on credit
     Purchased furniture for Rs 30000 on cash
     Sales on cash Rs 20000 and on credit Rs 30000
     Paid to supplier Rs 10000
     With draw merchandise for Rs 2000 and cash Rs 3000 for
    personal use
     Paid rent of the premises Rs 8000
    Required: Analyze the above transaction as per accounting
    equation (Both Methods)
    EXERCISE
    • Take the data from Activity 2 and prepare
     General Journal
     General Ledger
     Trial Balance

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