Accounting
Accounting
is primarily the processing of financial information. The processing is
consisting of five stages. These five stages are also referred as accounting
cycle.
1. Recording
First
stage of accounting is recording of financial transaction in the books of
accounts (journal). Recording is done in accordance with debit & credit
rules. Broadly recording can be classified into recording of expenses, income,
assets and liabilities.
2. Classifying
Second stage of accounting is
classification. It means that transaction recorded in journal is now classified
into different account. The book used for such classification is known as
ledger and it contains all accounts. Classification is done on the bases of
nature & functions of transactions.
3. Summarizing
Third stage of accounting of is summarizing
of financial transactions. It means that summaries are prepared from the
classified transactions (different accounts) .in simple term summary of
different account is prepared and in accounting language, this summary is known
as trial balance. Technically summary report showing the closing balances of
different accounts.
4. Reporting Results
Fourth
stage of accounting is reporting of results in the form of balance sheet &
profit and loss account. This is end product of accounting and these reports
(results) are used by different user for decision making.
5. Interpreting results
Fifth
stage of accounting is interpreting the result with the help of ratio analyses
like gross margin ratio, current ratio. These ratios are used to judge the
financial position and financial performance of the entity.
