The Accounting Cycle: The Process Of Financial Accounting

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Accounting cycle is the financial process starting with recording business transactions and leading up to the preparation of financial statements. This process demonstrates the purpose of financial accounting to create useful financial information in the form of general purpose financial statements. Beside that, the sole purpose of recording transactions and keeping track of expenses and revenues is turn this data into meaning financial information by presenting it in the form of a balance sheet, income statement, and cash flows. The accounting cycle is a set of steps that are repeated in the same order every period. The culmination of these steps is the preparation of financial statements. Some companies prepare financial statements on a quarterly…show more content…
When business transaction occur throughout the accounting period, journal entries need to recorded in the general journal to show how the transaction changed in the accounting equation. For example, when the company purchase car vehicle with cash, the cash account is decrease and credit on the left hand side and the vehicle account is increase and debit on the right hand side. There are three steps to make a journal entry. First, the business transaction has to be identified. Example vehicle, Company ABC purchased a car vehicle. This means a new asset must be added to the accounting equation. Since there are so many different types of business transactions, accountants usually categorize them and record them in separate journal to help keep track of business transaction. For instance, cash was used to purchase this vehicle, so this transaction would most likely be recorded in the cash. There are numerous other journals like the sales journal, purchases journal, and accounts receivable journal. After collecting and analyzing the information obtained in the first step, the information is entered in the general journal, which is called the book of original entry. Journalizing transactions may be done continually, but this step can be done in a batch at the end of the day if data from similar transactions. Example Company ABC buy vehicle with cash. The…show more content…
All transactions must be collected and summarized. All business transactions are first recorded in a book called journal before they are transferred to ledger account. So, the journal also known as book of original entry. The journal is like a diary where daily business transactions are recorded in order of date. The accounting entries as they appear in the journal are referred to as journal entries and the process of recording in the journal known as journalising. There are various types of journals but the most basic form of journal is known as general journal. A basic general journal need to be done early are analysis debit and credit before start journalizing .Example: ABC company purchased cleaning equipment for business use rm1200.The double entry should be recorded as debit cleaning equipment rm1200 and credit cash rm1200.At the end of the period, double-entry accounting requires that debits and credits recorded in the general ledger be equal which mean credit and debit have the same amount balance. Ledger accounts use the T-account format to display the balances in every account. Each journal entry have transfer from the general journal to the T-account. The debit side are always transferred to the left side and the credits are always transfer to the right side in T-accounts. Since most accounts will be affected by multiple transactions, there are usually have few numbers in both the debit and credit columns.
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