Accounting Cycle refers to complete sequence of accounting procedures which are required to be repeated in the same order during each accounting period. The accounting procedures includes recording, classifying, summarizing, presenting and analyzing the meaningful monetary information.
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The period of accounting cycle may differs organization to organizations. For example if an organization finalize its books every month end, then its accounting cycle may be called as monthly. In same was it could be quarterly or yearly.
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The main components of accounting cycle include:
- Recording: The first step starts with recording of the transaction in journal or books of original entry. This might be done manually or with the help of computers. The transactions which need to be recorded must be recorded in monetary terms.
- Classifying: The entries made in journal or original books of accounts are then posted in their respective ledgers base on their classification. In ledger account we find out the total effects of all similar transactions.
- Summarizing: Next step is to prepare profit & Loss Account and Balance Sheet. In profit & Loss account we find out profit or loss of the business. Balance sheet depicts the financial position of the business.
- Presentation: Accounting cycle does not stop with balance sheet. The information is then presented in required format to present it to the end users of it. Like information is presented to the management, auditors, Government agencies etc. All information must be delivered in time to the end users.
- Analyzing & Interpretation: Then the information presented in required format is analysed to get the actual financial position of the business.
Hope you have understand the accounting cycle process. You may also ask queries on it by commenting.