ACCOUNTING CYCLE/FLOW/PROCESS:

 The cycle starts with identify & analyse transactions &

 Then, record transactions in a journal &

 Then, post transactions to a appropriate general ledger &

 Then, determine the unadjusted trial balance &

 Then, Analyse the worksheet &
 Then, Adjust Journal entries and fix any errors &
 Finally, from trial balance financial statements are prepared from the
adjusted trial balance such as an income statement (P/L a/c), a trading
account, and a balance sheet. &
 Then, Closing the books

Journal: It is a primary book of accounting or the book of original/first. It is a day-

day business Transactions in a chronological unit of accounting. The process is
called Journalising
Journalising: The process of recording Transactions in journal
Narration: A short explanation of every transaction is written under each entry.
Compound Journal Entry Compound Journal entry is an entry in which more than
two accounts are involved & hence more than one account is either debited or credited
Types of Journal entries: Opening entries, Transfer entries, closing entries, adjusting
entries, Compound entries, reversing entries.
Balance B/F (Brought Forward): Balance B/F are those opening balances at the
beginning of the month debit and credit balances are totalled brought forward to
previous page
Balance C/F (Carried Forward): Balance C/F are those closing balances at the end
of the month debit and credit balances are totalled carried forward to next page
General Journal: A general journal is a book of original entries in which all
transactions are recorded.
Special Journal: It collectively refers to all the subsidiary books namely sales book,
purchases book, sales return book, purchases return book, journal proper & cash book.
Different Types Of subsidiary books: Purchase book, Sales book, Purchase returns
book, Sales returns book, Bill receivable book, Bill payable book, Cash book, journal
proper, petty cash book.
Purchases book is for recording all credit purchases of goods.
Sales book is for recording all goods sold on credit.
Purchase returns book (return outwards) for recording all purchases returned to
creditors.
Sales returns book (return inwards) for recording all sales returned by customers.
Bill Receivable book to keep a record of bills received from customers.
Bills Payable book to keep a record of bills payable to creditors.
Cash Book: The book that keeps records of all transactions; cash receipts & cash
payments
Journal Proper: The journal proper is used for entering infrequent transactions. In
general, journal proper contains entries such as opening entries, closing entries,
rectification entries, transfer entries, adjustment entries, entries for bills dishonour,
miscellaneous entries
Petty cash book: petty cash is maintained by business to record petty cash expenses
of the business, such as postage, cartage stationary etc.,

Ledger: Ledger is the principal book of accounts or the book of final entry, where
in all accounts like personal, Real, Nominal accounts are maintained
Posting: Posting is the process of transferring information (debits & credits) from the
journal to a ledger.
If Dr. side > Cr. side is called debit balance, which is indicated as ‘By balance c/d’
If Cr. side > Dr. side is called credit balance which is indicated as ‘To balance c/d’.
Balance: The accounts are balanced at the end of each month or financial year. This
difference is called the balance,
Balance b/d is the Balance brought down as opening balance of a ledger pulled from
the previous accounting period
Balance c/d is the Balance carried down as closing balance of a ledger pushed to the
next accounting period
Debtors: Debtors are the persons to whom goods are sold
Creditors: Creditors are the persons or firm from whom we purchase the goods.
Trial balance: It is a statement which shows debit & credit balances of accounts.
Trading Account: The balance of this account will either be Gross profit or Gross
loss. If we get Gross Profit the amount should be transfer to P/L A/c of credit side. If
we get Gross Loss the amount should be transfer to P/L A/c of Debit side.
Profit & Loss Account (Income Statement): It is used to find out the net profit or a
net loss. If we get Net Profit we will add to capital. If we get Net Loss we will
subtract to capital. It shows Summarized company’s revenues & expenses