After taking decisions such as
selecting a business, selecting the form of organization of business, making
decision about the amount of capital to be invested, selecting suitable site,
acquiring equipment, supplies etc., selecting staff, getting customers and
selling the goods etc., business man finally resorts to record
keeping.
For all types of business
organizations, transactions such as purchases, sales, manufacturing and selling
expenses, collections from customers and payments to suppliers do take place.
These business transactions are recorded in a set of ruled books, such as
journal, ledger, cash book etc; In modern times all the records are maintained
on a computer using computer software; unless these transactions are
recorded properly, he will not be in a position to know where exactly he stands.
Therefore, for any business record keeping is of foremost importance.
Following is the complete cycle of
accounting :-
(i) The balances of accounting;
from opening balance sheet and day-to-day business transactions of the
accounting year are first recorded in a book known as Journal.
(ii)
Periodically these transactions are transferred to concerned accounts, known as
ledger accounts.
ii) At the end of every accounting year these accounts are
balanced and a trial balance is prepared.
(iv) Then the final accounts such
as Trading and profit & loss accounts are prepared. (v) Finally a Balance
Sheet is made which gives the financial position of the business at the end of
the period.