The Accounting Cycle
Accounting Cycle is an accounting process that involve a series of procedures in collection, processing, and communication of financial information. There are 7 basis steps of accounting cycle which comprise of source documents, prima entry, ledger, draft trial balances & financial statement, adjustments, adjusted trial balance & financial statement and closing entries. At first source documents, are things like invoice, credit note, debit note, cash bill, payment voucher, official receipt, cheque counterfoil and memo. All this document are related to financial transaction of the organization. The source document is essential to the bookkeeping and accounting process. It is the evidence that a financial transaction occurred. If a company is audited, source documents back up the accounting journals and general ledger as an indisputable audit trail.( http://bizfinance.about.com/od/bookkeepingessentials/qt/Source_Document.htm) The 7 book of prime entry is record the daily business transactions in chronological order based on the source documents. (copy the lecture note) For example cash book, petty cash book, sales journal, purchases journal, sales returns, purchase returns and general journal. ( HYPERLINK "http://www.investorguide.com/definition/book-of-prime-entry.html" http://www.investorguide.com/definition/book-of-prime-entry.html) The purpose of the book of prime entry is to record of all accounting transaction as they arise and reduce the detail in the ledgers. So, when an invoice comes in from a supplier of raw materials, it will be recorded in the purchase journal, once it has been certified as a valid invoice. After the journal entries, the next step is to post the journal entries into account. Ledger Account also known as “T” Account and Account. Ledger accounts categorize these changes or debits and credits into specific accounts, so management can have useful information for budgeting and...
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