The Accounting Cycle

Journal, Cash Book, General Ledger

and Trial Balance
Classification of Accounts

 Accounts classify accounts according to their

nature.
 This facilitates grouping and coding of
accounts .
 Which in turn helps in the preparation of
Balance Sheet and Profit /Loss Account.
Classification of Accounts according to
their nature
 PERSONAL ACCOUNTS: Accounts of persons or firms with
whom the firm enters into dealings.
 Personal Accounts include both natural persons' accounts
and artificial persons 'accounts, representative personal
account.
 Examples:a)Capital account
 b)Debtors’account
 c)Creditors’account
 d)Bank/Insurance account
 e)Outstanding expense account.
 f)Interest received in advance account.
Contd…………

 REAL ACCOUNT:Accounts of properties

under the control of the firm.
 Examples: a) Land
 b) Building
 c) Stock
 d) Cash
 e) Goodwill/Trademark
Contd…………

 NOMINAL ACCOUNT:Accounts of
revenue,gains,expenses and losses.
 Examples: a) Purchase account
 b) Sales account
 c) Salaries & Wages account
 d) Discount account
 e) Comission & insurance account
Debit and Credit Rules for different
types of Accounts

PERSONAL ACCOUNT : Debit the receiver & Credit the giver.


REAL ACCOUNT: Debit what comes in, Credit what goes out.


NOMINAL ACCOUNT:
Debit expenses and losses and Credit
revenues & gains.
The Accounting Cycle
 The Accounting Cycle
 To record opening entries in the general ledger (opening
balances)
 To record transactions and events in the journal (journalisation) .
 To post journal entries in appropriate accounts in the General
Ledger.
 To balance the accounts in the general ledger.
 To prepare the Trial Balance.
 To pass adjustment entries.
 To prepare the revised Trial Balance.
 To pass closing entries to prepare financial statements.
 Steps in Accounting

Business Transactions Journal Ledger

Trial Balance

Final Accounts

• P & L Account
• Balance Sheet
JOURNALISATION

 General Principles:
 Transactions are analysed and recorded in
the journal.
 Different types of journals for recording
different types of transactions.
Different Types of Journals
 Purchase Day Book: Transactions relating to
 credit purchase.
 Sales Day Book: Transactions relating to

 credit sales.
 Cash Book: Cash,Bank,Discount
 Journal Proper: Transactions for which no
 other journal is maintained.
 Recording entries to rectify
 mistakes.
JOURNAL PROPER

 Opening Entries
 Closing Entries
 Rectification Entries
 Transfer Entries
 Adjustment Entries
 Miscellaneous Entries.
JOURNAL

 Book Containing Chronological Record of

Transactions

Date Particulars L.F Debit Credit

Account definition

 An Account is a separate record for each

type of asset, liability, equity, revenue, and
expense used to show the beginning balance
and to record the increases and decreases
for a period and the resulting ending balance
at the end of a period.
 All Accounts
 Can be Debited and Credited
 Have an increase side and a decrease side.
 Have a debit side and a credit side.
 Have a type and are classified as an
Asset,Liability,Expense,Revenue,Equity or Drawing.
 Are either a Balance Sheet or Income Statement
Account.
 Have a normal balance that is normally a debit
balance or credit balance.