Accounting Theory Essay

8187 Words Jun 16th, 2014 33 Pages
ACCOUNTING CYCLE The Series of business transactions which occur from the beginning of an accounting period to the end of an accounting period is referred any specific period of time for which a summary of business’s transaction is prepared. Steps in Accounting Cycle:1. 2. 3. Journalizing (Recording) Posting to Ledger (Classifying) Final Account (Summarizing)

Now Explain Steps:1 Recording:- This is the basic function of accounting. All business transaction, as evidenced by some documents such as Sale bill, Pass book, Salary Slip ect are recorded in the books of account. This is called recording process. 2. Classifying:- All entries in the Journal or books of Original Entry should be posted to the appropriate ledger accounts to find out
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8. It does not help complying with legal formalities. 9. It does not provide any information for talking managerial decision. 10. It has no Branches.

7. It gives the complete picture of the financial conditions of the business unit. 8. Legal formalities can be complied with help of accounting. 9. It provides Information for talking managerial

decision. 10. It has several branches like Financial accounting, cost accounting, Management accounting ect.

DOBULE ENTRY SYSTEM Under this system a proper and full record of all transaction is made every transaction has a double or dual aspect. It is based upon the principal that every receiver implies giver and every giver implies receiver. This method writhing every transaction in two accounts is given debit side and the other account is given credit with an equal amount. Thus, on any date, the total of all debits must be equal to the total of all credit because every debit entry has a corresponding credit. For example, ram purchased goods from Kewal, of Rs.5000. here ram is receiver of goods and hence, debtor of Kewal, who is the giver of goods, that is, he is the creditor of Ram. Similarly, Salary paid to manager is in lieu of the benefit received by the business, in terms of the service rendered ect. Thus, all transaction will have two aspect and a proper record of the transaction is necessary for this, it has to be recognized that. 1.) Each transaction is to be dealt with as standing alone

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