Accounting Cycle

Assets Resources owned by the Business Long Term and short Term Liabilities Obligations of the Business Long Term Short Term Capital Owners Investment in the Business Expenses Cost of goods and services used during Business Revenue Receipts or receive able against delivery of goods or rendering of services Transaction any deal which involve exchanges of financial data Recording is entering of accounting transaction in initial formal accounting format

Accounting Cycle
T Account or Accounts: What- It is a T shaped account having two side left is called debit and right is called credit. Purpose : It is used to record the Accounting Data for the preparation of Financial Information Debit (DR) refers to left side of the T Account Recording - if one record any amount on Debit (left) side for some types of accounts it shows increase and for the rest it shows decrease. Credit (CR) refers to right side of the T Account If one record any amount on the credit side it counts increase for some accounting elements and decrease for the rest

Debit & Credit Rules

Assets Liabilities Capital Expenses Revenue
Increase DR CR CR DR CR Decrease CR DR DR CR DR

ACCOUNTING Terms
Accounting Period Period For Which Accounts Are Prepared Month, Quarter , Half Year &Year

Matching Principle
Realization Concept

Expenses Are Matched With Concerned Accounting Period To Ascertain Correct Profit
Revenues Are Recorded In The Concerned Accounting Period on Delivery of Goods or Performance of Service Presently Accounts Are Prepared on Accrual Basis as described in Matching Principle & Realization Concept Business Deal Which Involve Exchanges of Financial Data

Accrual Basis

Transaction

Recording

Entering Accounting Transactions in Initial Formal Accounting format Called General Journal

Accounting Cycle
1. Recognition of the Transaction 2. Analysis of Transaction ( Which elements involved ) 3. Apply Debit & Credit Rules 4. Record in General Journal 5. Posting / Footing / Balancing 6. Trial Balance 7. Financial Information (Income Statement / Balance Sheet

Recognition of the Transaction

In Exams. Transactions are given At Profit Centers or Cost Centers a representative (s) of Finance Team appointed At other delivery centers documents are prepared by Store or Sales Departments Sometime it is done through internet or agents For bigger transaction documents are available in advance like Manual/Agreements

Analysis of Transaction
Find out the elements of Accounts involved like cash, sales, expenses, assets or liabilities etc. according to the nature of transaction. Segregate in case of more than two elements involved Count their respective amounts Check both sides are equal

Apply Debit & Credit Rules

Assets Liabilities Capital Expenses Revenue
Increase DR CR CR DR CR Decrease CR DR DR CR DR

Mr Kashif Record in General Journal

Date 1-1-12 Particulars Cash Kashifs Capital To record initial capital by owner 2-1-12 Shop-Building Cash To record purchase of Shop 3-1-12 4-1-12 Purchases (Inventory) 10,000 25,000 25,000 Posting Reference Debit 100,000 100,000 Credit

Cash
Cash Sales 15,000

10,000
15,000

Posting / Footing / Balancing Code 01 Cash

Date 1-1-12 2-1-12 Particulars Capital Shop-Building Posting Reference Debit 100,000 25,000 Credit Balance 100,000 75,000

3-1-12
4-1-12

Purchases
Sales 15,000

10,000

65,000
80,000

Posting / Footing / Balancing Code 01 Capital

Date 1-1-12 Particulars Cash Posting Reference Debit Credit 100,000 Balance 100,000

Posting / Footing / Balancing Code 01 Shop Building

Date 2-1-12 Particulars Cash Posting Reference Debit 25,000 Credit Balance 25,000

Posting / Footing / Balancing Code 01 Purchases (Inventory)

Date 3-1-12 Particulars Cash Posting Reference Debit 10,000 Credit Balance 10,000

Posting / Footing / Balancing Code 01 Sales

Date 4-1-12 Particulars Cash Posting Reference Debit Credit 15,000 Balance 15,000

Trial Balance As on 4-1-12

Particulars Cash Capital Shop Building Purchases Sales Balance 115,000 25,000 10,000 15000 115,000 Debit 80,000 100,000 Credit

Income Statement
Sales Cost of Sales and exp. 15,000 10,000

Profit

5,000

Balance Sheet
Particulars Cash Shop Building Capital Profit Balance 105,000 Debit 80,000 25,000 100,000 5,000 105,000 Credit