classifying & summarizing the financial transactions & interpreting the results Accounting cycle involves the following stages: 1. 3. Recording of transaction (Journal) Classifying the transaction (ledger) Summarizing the transaction (trial balance) Interpreting the results (Accounting ratios) .Journalizing Transactions Accounting is the art of recording. 2. 4.

Rules of Debit & Credit Personal Account Debit the Receiver Credit the giver Real Account Debit what comes in Credit what goes out Nominal Account Debit all expenses Credit all income .

The journal records all daily transactions of a business into the order in which they occur.Journal A journal is a book containing a chronological record of transaction. The process of recording transaction in a journal is termed as journalizing. .

F Debit Credit EXAMPLE: Date 2000 Jan 1 Particulars Cash Account Dr To Capital A/C L.000 .Journal Performa of Journal Date Particulars L.F Debit ( ) 20.000 Credit ( ) 20.

Classified and summarized records Book of principal entry Features Posting .Ledger Posting It is the principal book of accounts where similar transactions relating to particular person or thing are recorded.

item or heading of expenditure or income are grouped in the concerned account at one place. Ledger is the "store-house" of all information which subsequently is used for preparing final accounts and financial statements. Ledger is the stepping stone for preparing Trial Balance ² which tests the arithmetical accuracy of the accounting books. .Advantages of ledger Transactions relating to a particular person. When each account is periodically balanced it reflects the net position of that account.

000 10.000 4000 4000 3 Dr 2000 2000 4 Dr 1000 1000 .F Debit ( ) Credit ( ) Cash A/C Dr To Capital A/C Furniture A/C To Cash A/C Purchase A/C To Mohan Mohan To Cash A/C Dr 10.Ledger : Example JOURNAL Date 1 2 Particulars L.

000 MOHAN ACCOUNT By Purchase A/C 2000 .000 By Furniture A/C By Mohan A/C By balance c/f CAPITAL ACCOUNT 4000 1000 5000 By balance c/f 10.000 By Cash A/C 10.Ledger: example LEDGER CASH ACCOUNT To Capital A/C 10.

Total debits should be equal to total credits.taken out from ledger it also includes the balances of cash and bank taken from cash bookµ . Acc to carter ´Trial balance is the list of debit and credit balances .Trial Balance It is a statement of all the balances from the ledger and cash book on a particular date.

Trial Balance: Objectives To check arithmetic accuracy of books of accounts To detect errors Summarized ledger To facilitate preparation of financial statements .

Trial Balance: Methods for preparation Total Method  Balance Method  Trial balance is prepared by taking into account the totals of debit and credit balances of each account recorded in the ledger. . it is also known as net trial balance. Trial balance is made on the basis of the balances of the accounts.

Trial Balance: Advantages Correct ledger balance Helps in preparation of final accounts Arithmetical accuracy errors are revealed If the total debit is not equal to the credit. it reveals the presence of some errors during the process of journalizing or posting. .

Trial Balance: Example TRIAL BALANCE AS ON 31ST JANUARY PARTICULARS DEBIT CREDIT Cash Account Capital account Purchases accounts Mohan Sales account 12000 10000 4000 2000 4000 16000 16000 .