1.
Business Transaction:
Any deal or event that have
been taken place between two parties is called business transaction.
2.
Accounting :
It is a systematic method or process of recording business
transactions in an organized manner. It consists of certain rules and
regulations which are followed by accountants in order to record business
transactions.
3.
Steps of accounting :
There are four steps which are involved in accounting :
Ø Recording
Ø Analyzing
Ø Summarizing
Ø Final Results
Now , I will explained all
of them one by one :
Recording :
Business transactions are
firstly recorded in Journal General.
Analyzing :
Transactions are analyzed in second step in ledger.
Summarizing :
They are summarized in trail balance.
Final Results :
After completely all these steps, in the final results we will make
financial statements for determining the net income or net loss.
Cycle of Accounting :
What is Journal General :
It is a book of Accounting in which we will record all business
transactions in chronological order . chronological means we will record all
transactions in accordance with date or we can say that we will record them
date wise on daily basis. For instance
that what is sold, how many units are sold,
which amounts should we have to collect, which amount should we have to
receive, what are the expenses of our business which we have to pay etc.
Journal also have other names as well.
How to Record Entries in Journal General :
We must record all the business transactions according to dual
effect. Dual effect means that every business transactions has two aspects.
First one aspect is
called Debit and the Second aspect is called Credit. We should debit and credit all the entries
according to their respective rules of doing debit and credit.
What is Ledger :
It is a cluster or groups of account . in ledger, we will simply
post the entries which we have recorded in journal general. We can also say
that in ledgers, we will doing posting
of all accounts independently or one by one . For instance the ledger of Cash
Account, Sales Accounts, Accounts Receivable Accounts, Creditors Accounts,
Revenues Accounts, Expenses Accounts and many others.
How to do Posting in Ledger :
In Cash Account, we will post all the journal entries related to
cash only . similarly, in sales , revenues, expenses, creditors, accounts receivable
account we will also post all the journal entries related to their accounts
only. In Posting, we can also find out
the balances of each accounts and their balances are further carry forward.
What is Trail Balance :
Trail balance is a list of all accounts which we have posted in
ledger along with their balances. Our trail balance has all debit and credit
sides must be equal.
Final Results :
After doing and following all these steps, now it is a time to make
final statements or we can say that financial statements. In Financial statements Balance sheet, Cash
flow statement, Income Statement and
Owners Equity Statements are included.
The purpose of making all these statements is to determine the financial
position, net income or net loss of the corporation or business.
