Accounting cycle or process:

In accounting system, accounting cycle or process begins with the identification of

transactions and ends with the communication of financial statement to the users concerned.

In a business organisation, transactions such as purchases of goods, sale of goods,

manufacturing and selling expenses, collection from customers and payment to suppliers take

place. These day to day business transactions are identified first. Because non- monetary

transactions or events are not recorded in the books of accounts. Therefore, the transactions

which can be measured in terms of money are recorded in the books of original entry or

subsidiary books, such as cash book, journal book, purchase book, sales book etc,. After

recording the transactions in subsidiary books, they are classified or grouped into a number

of headings in the ledger which is called main book. In other words, recorded transactions are

transferred into concerned accounts known as ledger accounts. At the end of every

accounting year these accounts are made balancing and a trial balance is prepared which is

known as summarization.

With the help of trial balance, financial statements such as trading account, profit and loss

account or income statement and balance sheet are prepared. After the preparation of

financial statements, analysis and interpretation of financial statements are made. At last

financial or accounting informations are communicated to the users concerned. In this way,

accounting cycle or process completes each year.