This document briefly describes each and every stage of accounting cycle with appropriate rules. rules followed are based on type of account.it also includes the proforma of journal,ledger,trail balance, final account statements.

1. ACCOUNTING CYCLE
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SUBJECT NAME: Accounting For Management PAPER CODE:MB102
ACCOUNTING:
According to American Institute of certified public accountants, Financial Accounting
is the systematic and comprehensive recording of financial transactions pertaining to a business,
and it also refers to the process of summarizing, analyzing and reporting these transactions to
oversight agencies and tax collection entities. Accounting is one of the key functions for almost
any business; it may be handled by a bookkeeper and accountant at small firms or by sizable
finance departments with dozens of employees at large companies.
The goal of managerial accounting is to help company managers and supervisors make
financial decisions, whereas the goal of financial accounting is to provide important financial
information about your company to those outside of the business.
GOLDEN RULES OF ACCOUNTING:
In order to write books of accounts the transactions are classified on the nature of
Personal account, Real account and Nominal account.
a)Personal account:
Debit the receiver.
Credit the giver.
b)Real account:
Debit what comes in.
Credit what goes out.
c)Nominal account:
Debit all expenses and loses.
Credit all incomes and gains.
ACCOUNTING CYCLE:
The accounting cycle is the name given to the collective process of recording and
processing the accounting events of a company. The series of steps begin when a transaction
occurs and end with its inclusion in the financial statements.

2. ACCOUNTING CYCLE
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STEP -1: SOURCE DOCUMENTS (ANALYSIS OF BUSINESS TRANSACTIONS)
In order to analyze a transaction, you must know what it is you're looking for.
Accountants are equipped with a very special tool that they use when analyzing transactions -
that tool is the accounting equation. The accounting equation states that
Assets = Liabilities + Owner's equity.
STEP-2: MAKE JOURNAL ENTRIES
Journal entry is an entry to the journal. Journal is a record that keeps accounting
transactions in chronological order, i.e. as they occur.
STEP-3: POSTING TO LEDGER
After journal entries are made, the next step in the accounting cycle is to post the journal
entries into the ledger.
Posting refers to the process of transferring entries in the journal into the accounts in the
ledger. Posting to the ledger is the classifying phase of accounting. A ledger is a summary
statement of all transactions resulting to person, asset, expenditure/income which have taken
place during a period of time and it shows their net effect. A ledger is in ‘T’ format.

3. ACCOUNTING CYCLE
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STEP-4: PREPARE TRAIL BALANCE
The format of the trial balance is a two-column schedule with all the debit balances
listed in one column and all the credit balances listed in the other. The trial balance is prepared
after all the transactions for the period have been journalized and posted to the General Ledger.
Trail balance is prepared to test the arithmetic accuracy of the transactions of a business. This
can be done using two methods: 1) Totals method 2) balances method
STEP-4: PREPARE FINANCIAL STATEMENTS
After preparation of trail balance, the next stage of accounting cycle is preparation of
financial statements or positional statements. These statements can be prepared in two ways.
(a). Orderly method of preparation of balance sheet. (b). Marshalling method of preparation of
balance sheet. The following are the financial statements:
1. Trading account
2. profit or loss account
3. balance sheet
ADJUSTMENT ENTRIES :
These are those entries which are not recorded in the books of accounts,which have considered or must
have taken place after preparation of ‘ trail balance ’,but they fall in the same financial year. Hence,
during the preparation of final account statements these adjustments are to be considered.
These adjustment entries are recorded once in either trading account or profit and loss account or
balance sheet.

4. ACCOUNTING CYCLE
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1.TRADING ACCOUNT
Trading account is prepared to find out the profit between selling price and cost price. Cost price
is derived from the direct expenses or expenses at factory level. The direct incomes are credited to trading
account and the expenses are debited to trading account . The differences that arises from this account are
Gross profit at debit side and Gross loss at credit side.
Dr Trading account for the year end……of ……. Cr
Particulars Amount(dr) Particulars Amount(cr)
2.PROFIT AND LOSS ACCOUNT
All the indirect expenses are debited to profit and loss account in terms of selling expenses, office
expenses, maintenance expenses and financial expenses. All the indirect incomes are credited to profit
and loss account. If the balance is credit side net loss id derived and if it is in debit side net profit is
derived.
Dr Profit and Loss account for the year end……of……. Cr
Particulars Amount(dr) Particulars Amount(cr)
3.BALANCE SHEET
It is a statement which gives the details about assets and liabilities of the business and discloses the
financial position of the business on that day.
Balance sheet as on …….(date/month/year)
Liabilities Amount Assets Amount
LIMITATIONS OF FINANCIAL ACCOUNTING”
1.Not possible to make decisions. Doesn’t provide information about what factors are causing loses.
2.Can’t help in price fixation and maintains secrecy.
BY
SHIREESHA. P (MBA SEM-1)

5. ACCOUNTING CYCLE
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