informed judgements and decisions by users of the information”. From the above definitions, the following attributes of accounting emerge: (i) Accounting is an art. It requires the expertise and skill of accountants to design accounting system and policies, to decide the accounting process in order to suit the requirements of an organisation. (ii) The transactions or events of a business must be recorded in monetary terms.
(iii) Accounting process involves recording, classifying and summarising of transactions and analysis and interpretation of the results. (iv) The results of such analysis must be communicated to the persons who are interested in such information. . Accounting cycle Accounting cycle is the sequence of steps involved in the accounting process.
Accounting cycle starts with the identification and recording of financial transactions of an organisation and ends with the preparation of final accounts for the accounting year. The cycle continues for the next accounting year with the opening balances of assets and liabilities which are the closing balances of the preceding year. The steps involved are: (i) Identifying the transactions and journalising The first step in the accounting process is identifying the financial transactions of a business. All the monetary transactions are recorded in the books of original entry called journals.
Recording the transactions in the journal is called journalising. Entries are made in the journals on the basis of source documents in the chronological order, i.e., the order of occurrence of the transactions. Accountancy - (ii) Posting and balancing Transferring the entries from the journal to the ledger is called posting. In the ledger, entries are made in each account after classifying them under common heads.
Finding the difference between the total of the debit column and credit column of all the ledger accounts is called balancing. (iii) Preparation of trial balance The list of ledger balances namely trial balance is prepared as the next step. On the basis of ledger balances the financial statements are prepared. (iv) Preparation of trading account Next step is preparation of trading account for a particular accounting period.
All the direct revenues