The field of accounting is mainly the process of systematic organization of all the relevant informations and details regarding the regular and routinary transaction inside the business operations. In this aspect, all of the significant economic events accumulated through the business operations are recorded and classified in organized ledgers to determine their effects towards the different economic elements in the business. Aspects such as the income generation and economic standings are mainly determined using this aspect thus, aiding the business officials regarding the critical informations of their business.
The aspect of accounting is mainly generalized in a systematic cycle that is operated within the established fiscal period of the business organization. This nature is mainly related to the characteristic of the business, which is recurring and cyclical in their operation thus, producing new transactions and economic events to be recorded and accounted. The cycle starts in the recognition and analysis of the business event or transaction. This is then recorded into journal entries and posted into the corresponding subsidiary ledgers and T-accounts for the classification.
Depending on the nature of the business operation, a trial balance is often calculated at the end of each operation period to verify the equal standings of the sum of debits and credits. For accrued and deferred accounting items, adjusting entries are journalized and posted into the corresponding ledgers to recognize the nature of the said transaction. This is followed with the calculation of the adjusted trial balance to incorporate the adjusting entries.
Based from the adjusted trial balance, financial statements are then prepared namely the income statement and the balance sheet to summarize the results of the fiscal period. Afterwards, the closing entries are then prepared wherein the balances of the temporary accounts are transferred to the permanent account to realize their effects to the owner’s equity balance and thus, resetting the temporary accounts for the following fiscal operation period.
In the accounting cycle, each information and business transaction have a significant effect on the basic accounting equation thus, they must be duly recognized and journalized. Each transaction in the business operation is classifiable according to their nature and the category they affect. On the perspective of the temporary account equation, each event has a corresponding effect whether increasing the income factor that has a direct proportional effect on the net income or increasing the expense that has an inverse effect on the income. Because of this significant effect, each event must be recorded and journalized to maintain the reliability and balance of the accounting cycle.