introduction of accounting cycle how to create t accounts how to prepare trail balance and what is debit accounts and credit accounts

1. ACCOUNTNG CYCLE

2. INTRODUCTION
It s refers to a complete sequence of accounting procedures which are required to be repeated n
same order during each accounting period accounting cycle includes
 Recording
 Classifying
 Summarizing

3. Table of Contents
INTRODUCTION....................................................................................................................................................................... 2
Recording:................................................................................................................................................................................... 4
Classifying: ................................................................................................................................................................................. 4
Summering................................................................................................................................................................................. 4
Transaction:............................................................................................................................................................................... 4
Problems..................................................................................................................................................................................... 4
Q.1 prepare accounting equation on the basis of the following...................................................................... 4
Journal:......................................................................................................................................................................................... 4
Characteristics of journal:.................................................................................................................................................... 4
Trial Balance:............................................................................................................................................................................. 5
Adjusting Entries:..................................................................................................................................................................... 5
Adjusted Trial Balance:.......................................................................................................................................................... 5
Financial Statements: ............................................................................................................................................................. 5
Closing Entries:.......................................................................................................................................................................... 5
Post-Closing Trial Balance:................................................................................................................................................... 5
Reversing Entries (Optional):............................................................................................................................................... 5
Preparing a Trial Balance:.................................................................................................................................................... 6
Organize by Types................................................................................................................................................................... 6
Determine Debits and Credits............................................................................................................................................ 6
Prepare the Trial Balance..................................................................................................................................................... 6
Total Debits and Credits ....................................................................................................................................................... 6
T-Accounts: ........................................................................................................................................................................... 6
Draw T-Accounts..................................................................................................................................................................... 6
Enter Opening Balances........................................................................................................................................................ 6
Record Transactions .............................................................................................................................................................. 7
Calculate Running Balances ................................................................................................................................................ 7
Example T-Account (Cash):............................................................................................................................................ 7

4. Recording:
First you have to records all transaction n the journal or boo of original entry known as subsidiary
boo as and when the tae place
Classifying:
All entries n the journal or boo of original entry should be posted to the appropriate ledger
accounts to find out at a glance the total effect of all such transaction n particular account
Summering
At the last stage we have to prepare trail balance and final account with a view to ascertaining the
profit or loss made during a trading period and the financial post on of the business on a particular
date
Transaction:
Any dealing between 2 persons or 2 in 2 parties s called transaction it may related to purchase and
sales of good which s receipt and payment of cash and rendering of services by the 2 different
parties
There are 2 types of transaction
 Cash transaction
 Credit transaction
Problems
Q.1 prepare accounting equation on the basis of the following
 Rahim started business with the cash 20000 rupees
 Rahim purchased furniture for the cash 2000
 Rahim paid rent 200 rupees
 Rahim purchased goods on credit 3000 rs
 Rahim sold goods (cost price 2000) for rs 5000 on cash
Journal:
In accounting our object should be to record the business transaction properly in a book. The first
boo to be used for this purpose us called journal. The word journal has been derived form the
French word jour which means day so journal means daily transaction are recorded day by day n
journal and hence t has been named so. It is a book of original entry to record chronologically and in
detail the various transaction of a trader. It is also known as day book because it contains the
account of every day’s transaction.
Characteristics of journal:
Journal is the first successful step of the double entry system. A transaction is recorded first of all n
the journal. So journal s called the book of original entry. A transaction s recorded on the same day t

5. taes place. So journal s called day book. Transaction is recording in chronologically. So journal s
called chronological book.
NARRATION S WRITTEN BELOW EACH ENTRY
 The amount s written n the last two columns
 Debt amount n debt columns
 Credit amount n credit columns
Trial Balance:
A trial balance is prepared to ensure that debits and credits are equal. It lists all the accounts and their
balances to verify that the accounting equation (Assets = Liabilities + Equity) is in balance.
Adjusting Entries:
Adjusting entries are made at the end of the accounting period to ensure that the revenue recognition
and expense recognition principles are applied accurately. This includes adjustments for items like
accrued expenses, prepaid expenses, depreciation, and unearned revenue.
Adjusted Trial Balance:
After adjusting entries are made, another trial balance is prepared. This is called the adjusted trial
balance, and it is used to ensure that the books are still in balance after adjustments.
Financial Statements:
Financial statements, including the income statement, balance sheet, and statement of cash flows, are
prepared using the adjusted trial balance. These statements provide a snapshot of the company's
financial performance and position.
Closing Entries:
Temporary accounts (revenue, expense, and dividend accounts) are closed to prepare the books for the
next accounting period. Closing entries transfer the balances of these accounts to the retained
earnings account.
Post-Closing Trial Balance:
After closing entries are made, a post-closing trial balance is prepared. This ensures that only
permanent accounts (assets, liabilities, and equity) have balances, and temporary accounts have been
closed.
Reversing Entries (Optional):
In some cases, reversing entries are made at the beginning of the new accounting period to simplify
the recording of certain transactions.

6. These steps collectively make up the accounting cycle, and they are repeated for each accounting
period (usually monthly, quarterly, or annually). The accounting cycle helps ensure the accuracy
and completeness of financial records and supports the preparation of reliable financial statements
for decision-making and reporting purposes.
Preparing a trial balance and T-accounts involves a systematic process of organizing and
summarizing accounting transactions. Let's break down the steps for each:
Preparing a Trial Balance:
A trial balance is a list of all the general ledger accounts and their balances. It's used to ensure that
the total debits equal total credits, confirming that the accounting equation is in balance.
Identify Accounts and Balances
List all the accounts from the general ledger. Identify the balances for each account (debit or credit).
Organize by Types
Group the accounts by types (assets, liabilities, equity, revenue, and expenses).
Determine Debits and Credits
For each account, determine whether the balance is a debit or credit. Debits and credits should be
added separately.
Prepare the Trial Balance
Create a two-column table with one column for debits and one for credits. Enter the account names
and their corresponding balances in the appropriate columns.
Total Debits and Credits
Add up the total debits and total credits. They should be equal if the books are in balance.
T-Accounts:
T-accounts are a visual representation of an individual account in the general ledger. They help you
see the debits and credits for a specific account.
Draw T-Accounts
Draw T-accounts for each relevant account. The T-account has a vertical line representing the
account and two horizontal lines for debits and credits.
Enter Opening Balances
If the account has an opening balance, enter it on the appropriate side (debit or credit) of the T-
account.

7. Record Transactions
For each transaction, record the amount in the appropriate column (debit or credit) based on the
account affected.
Calculate Running Balances
Calculate the running balance after each transaction. Add or subtract the transaction amount to the
previous balance.
Example T-Account (Cash):
Repeat these steps for other accounts to create T-accounts for each relevant account in the general
ledger. The running balances in the T-accounts should match the amounts in the trial balance.
Both the trial balance and T-accounts are crucial tools in the accounting process, ensuring the
accuracy of financial records and facilitating the preparation of financial statements.
Proof of a accuracy
F the debt and credit totals of the trail balance are equal and also correspond with the total of
journal. We may be satisfied that the posting have been properly made and are arithmetically
accurate.
How to prepare a trail balance
The trail balance s usually prepared on a loose sheet of paper
We may prepare a trail balance n one of the following forms
 Total trail balance
 Balance trail balance
 According to total trail balance method two sides of each ledger account debt and credit
side are added up and the debt and credit total so obtained are placed n the debt and credit
columns of trail balance respectively
Rules of balance account
 Add up both sides of the account
 Find out the difference n a separate slip
 Put the difference on the lighter side
 Add up both sides again
 Rule off

8. Name deb cre
Capital X
Drawing X
Purchase X
Sales X
Expenses X
Debtors (customers) X
Creditor(suppler ) X
Cash X
Sales return x