ACCOUNTING CYCLE

Accounting Cycle:

                Accounting is the field of study which tells us about how to collect the economic figures, evaluate and analyze them and  record them  in a very respectable and professional way to present to the business stakeholders and helps them to collect the required information from the pool of business transactions. That is an art and we also knows it with the name of book keeping.

As I write in the above paragraph accounting of business financial transactions is an art of collection, evaluation, analyzing, recording and presenting to the business management and stakeholders. That complete process is based on some steps of activates which are commonly known as accounting cycle.

That Accounting Cycle is consist of 7 different steps  which are Source Data, Journal, Ledger, Trial Balance, Adjustment, Closing Accountings and Stock Valuation and Preparation of Final Accounts. Explanation regarding these steps or stages of accounting cycle is as follows:

1.       Collection of Information:

Collection of Information about every business transaction from all the sources is the first step that is known as information gathering or collection. All the Accruals and Non- Accruals base transactions are important for business.

2.        Journal Entries Recording:

After collection of the transactions the business accountant clerks are responsible to record them on the basis of their period, amount, under the given heads of accounts to them. They must record the transactions with their effects on the head of accounts like a transaction must be debit or credit transaction.

There are two different kinds of recording systems one is called double entry system and the other one is known as single entry system. Double Entry normally use by Corporation and general business organizations and the single entry transactions use by Non-Profit organizations.

3.       General Ledger:

General Ledger actually helps the Trial Balance and that tells us about the accounting entry type and its purpose. That Separate the  transaction and helps us to make a pool of the similar transaction to count them under the head of trial balance.

4.        Trial Balance:

Trial Balance helps us to collect all the same type of transaction under debit and credit columns and count them. Be remember that at the end after the calculations of both sides of debit and credit columns their balances must be equals. Trial Balance helps the accountants to check and reconcile their bookkeeping skills.

5.       Adjustment Entries:

Sometime the accountants they record the wrong figures or they receive or issued the wrong amounts. That step Adjustment entries helps us to correct the errors and also helps us to complete the transactions in a very integrated way of bookkeeping.

That’s the reason the adjusted trial balance always be the part of accounting and all the adjustments and accounting entries  which needs some corrections are the part of it after correction with their adjusted amounts of figures.

6.       Closing Account & Stock Evaluation:

 

When the accountants are free from the adjustment entries and they are moving to the next step which is known as closing account and stock evaluation. At this step they need proper correct information about their stock levels, equities and personal capital to make the final closing entries at the end of the business accounting period.

7.       Preparation of Final Account:

Preparation of financials is the last step in which we prepare the financials for the auditors, investors and business top leadership or owners . Statement of Profit and Loss, Balance Sheep,  Cash Flows Statement and Statement of Equity are the part of final accounts.

That are the commonly known steps of accounting cycle and every accountant knows them and trying to perform his duties according to them in the given standards by IFRS, IAS and GAAP.