2. ACCOUNTING CYCLE
The accounting cycle is a collective process
of identifying, analyzing, and recording
the accounting events of a company. It is a
standard 5-step process that begins when a
transaction occurs and ends with its
inclusion in the financial statements.
In other words, Recording, Classifying, &
Summarizing are termed as a “Process of
Accounting” or “Accounting Cycle”.
3. TRANSACTION
A transaction is a completed agreement
between a buyer and a seller to exchange
goods, services, or financial assets in return
for money. A transaction may be recorded by
a company earlier or later depending on
whether it uses accrual accounting or cash
accounting.
It is a business event that has a monetary
impact on an entity's financial statements, and
is recorded as an entry in its accounting
records.
Examples of transactions is as follows:
Sold goods to Avinash Ltd of the list price of
Rs. 20,000 at cash discount of 10%.
4. JOURNAL
A journal is a detailed account that records all
the financial transactions of a business, to be
used for the future reconciling of accounts and
the transfer of information to other official
accounting records, such as the general ledger.
Examples of journal is as follows:
Date Particulars l.f Amount {Dr.} Amount {Cr.}
2 June Avinash Ltd A/c Dr.
Discount Allowed A/c Dr.
Sales A/c
{Goods sold to Avinash Ltd at 10%
CD.}
18000
2000
20000
Journal of ABC Ltd
5. LEDGER
A ledger is a book containing accounts in
which the classified and summarized
information from the journals is posted
as debits and credits. The ledger contains the
information that is required to prepare
financial statements. It includes accounts for
assets, liabilities, owners' equity, revenues and
expenses.
Examples of ledger is as follows:
Date Particulars j.f Amount
{Dr.}
Date Particulars j.f Amount
{Cr.}
2 June By Avinash Ltd
A/c
18000
18000
Sales A/c
6. TRIAL BALANCE
A trial balance is a bookkeeping worksheet in
which the balance of all ledgers are compiled
into debit and credit account column totals
that are equal. The general purpose of
producing a trial balance is to ensure the
entries in a company's bookkeeping system
are mathematically correct.
Examples of Trial Balance is as follows:
Name of Account Dr. Cr.
Purchase 24000
Return Inwards 2000
Sales 18000
Cash In Hand 12000
Capital 16000
36000 36000
Trial Balance
7. TRADING AND PROFIT & LOSS A/c
Trading account is a statement which is
prepared by a business firm. It shows the gross
profit of business activities during a specific
period.
The Profit and Loss statement is a financial
statement that summarizes the revenues, costs,
and expenses incurred during a specified period.
Examples of Trading, P&L A/c is as follows:
Particulars Rs. Particulars Rs.
**** - ****** -
***** - *** -
**** - ***** -
Gross Profit 24000 Gross Loss 12000
*** - ****** -
****** - **** -
*** - ******** -
Net Profit 62000 Net Loss 24000
Trading and Profit & Loss A/c
8. BALANCE SHEET
Balance Sheet is the financial statement of a
company which includes assets, liabilities, equity
capital, total debt, etc. at a point in time. Balance
sheet includes assets on one side, and liabilities
on the other.
Examples of Balance Sheet is as follows:
Liabilities Rs. Assets Rs.
**** - ****** -
*** - *** -
**** - **** -
****** - ******* -
25000 25000
Balance Sheet
