Accounting Cycle

After taking decisions such as selecting a business, selecting the form of organization of business, making decision about the amount of capital to be invested, selecting suitable site, acquiring equipment, supplies etc., selecting staff, getting customers and selling the goods etc., business man finally resorts to record keeping. For all types of business organizations, transactions such as purchases, sales, manufacturing and selling expenses, collections from customers and payments to suppliers do take place. These business transactions are recorded in a set of ruled books, such as journal, ledger, cash book etc; In modern times all the records are maintained on a computer using computer software; unless these transactions are recorded properly, he will not be in a position to know where exactly he stands. Therefore, for any business record keeping is of foremost importance. Following is the complete cycle of accounting :- (1) The balances of accounting; from opening balance sheet and day-to-day business transactions of the accounting year are first recorded in a book known as Journal. (2) Periodically these transactions are transferred to concerned accounts, known as ledger accounts. (3) At the end of every accounting year these accounts are balanced and a trial balance is prepared. (4) Then the final accounts such as Trading and profit & loss accounts are prepared. (5) Finally a Balance Sheet is made which gives the financial position of the business at the end of the period.