Accounting Process or Cycle Of Gread XI

Accounting Process or Cycle

Accounting is a continuous process. It is a complete sequence of accounting activities. Those include identifying, recording, classifying, summarizing, analyzing and communicating financial transactions. The sequential steps to be followed in accounting activities, is known as accounting process. The accounting process takes the form of cycle. The sequential steps of accounting activities are taken in cyclic order. It starts from primary entry of transaction in journal and ends with the preparation of final account at the end of accounting year.  The cycle follows the same order every year.  So, it is also called accounting cycle. The following diagram shows the steps or process of accounting cycle:

1.       Transaction: First of all identifying the financial transactions and their required documents are collected.

2.      Recording: Recording the financial transaction in journal book and subsidiary book systematically.

3.      Classification: Financial transactions are classified into personal, real and nominal account as per their nature and recorded in their respective ledger account. After then, their balances are determined.

4.      Summarization: A summary called trial balance is prepared to check arithmetically accuracy of entries made in ledger account. After this final accounts (i.e. Trading Account, Profit and Loss account and Balance sheet) are prepared as summary report.

5.      Interpretation and Evaluation: The data found in final accounts are analyzed to draw conclusions about the profitability and financial position of business. Then after they are interpreted.

6.        Communication: Finally, the conclusions are communicated to the concerned parties (i.e. various users like owners, creditors, managers etc.)

	Transaction ·         Identification ·         Measurement ·         Documentation
Communication			Recording ·         Journal ·         Subsidiary Books
	Accounting Cycle          or, process
Interpretation and Evaluation		Classification ·         Posting into Ledger ·         Balancing the ledger
	Summarization ·         Trial balance ·         Final Accounts ü  Trading account ü  P/L Account ü  Balance Sheet