Fundamentals of Accounting

Chat Session # 4

The Accounting Cycle

The sequence/series of steps in the processing of financial transactions, beginning when a

transaction occurs and end with its inclusion in the financial statements. The cycle occurs within an
accounting year.

Source Document Journalize Ledgers Trial balance

Balance Sheet Trading profit & Loss

(Statement of Financial Position) (Income Statement)

Journal

There are a number of journals used to record specific transactions:

Sales journal – records credit sales

Purchases journal
Returns Inwards Journal
Returns Outwards Journal
Cash Book
General journal
– records credit purchases
– records a list of customers who return goods to the business
– records a list of suppliers to whom the business returns goods
- Keeps a record of cash and bank account
– records all other transactions (e.g. purchase/sale of fixed assets on
credit, return of fixed assets)

Ledgers

There are a number of ledgers used:

Sales Ledger – contains the ledger accounts for all customers

Purchases Ledger – contains the ledger accounts of all suppliers
Cashbook – the cashbook is both a journal and a ledger. It contains the
accounts for cash and bank.
General Ledger – contains the ledger accounts of all other items (E.g. capital
account, accounts of fixed assets, accounts for expenses, accounts
for revenues)