Professional Documents
Culture Documents
ACCOUNTING CYCLE
The language of business is Accounting.
Performance is impacted by the quality of the decisions being made. Time is a critical factor.
Decisions drive a business. When starting a business, you should proceed as follows:
-Be knowledgeable about the business (generate ideas).
-Carry out a feasibility research study or report to know the viability of the business.
-Get capital (finance); this could be debt or equity finance.
-Use the capital to buy and/or purchase assets.
-Use the assets to generate revenue and carry out various operations in the company.
Accounting Cycle
The whole process, from capturing information in the sourcing of documents to the
preparation of financials,
An accountant cannot verify anything without source documents (evidence) and cultivating a
good data culture (keeping records in order). By law, directors are in charge of financial
statements, but accountants prepare the statements.
Key Concepts
a. Source Documents: Where the transactions are captured/recorded (i.e., invoices, receipts,
bills, etc.)
b. Transaction: Any event that has a financial impact on the business and can be measured
reliably.
c. Journal: The chronological accounting record of an entity’s transactions.
d. Account: An account is a unique record for each type of asset, liability, equity, revenue,
and expense. The accounts can be classified into personal accounts (Receivables, Payables,
Capital, Bank) and Impersonal accounts (Real A/C (Motor vehicles, Furniture) or Nominal
A/C (Revenue/Expenses)).
e. Chart of accounts: This is a complete listing of every account in an accounting system.
f. Accounting system: This is a system used to manage the income, expenses, and other
financial activities of a business. The accounting system may be manual or automated.
g. Ledger: A book that contains the accounts for the transactions of the business. The book of
accounts and their balances. We record the information from the source documents to the
books of accounts (ledgers).
h. Posting: Copying amounts from the journal to the ledger.