Hello friends, chapter number 4, process and basis of
accounting theory is written in it, we will not take much
time because it is a practical approach of our entire
course and all the things written in it have already been
told to you before.
Process and basis of accounting means where does accounting
start and where does it end?
First of all, we have to find out what are the
transactions, accounting starts from transactions, that is,
any activity that has any positive or negative effect on
the financial position of the business.
Then we record this transaction in the journal, then we
make a ledger to summarize the journal.
To do this, the ledger makes a particular account-wise
detail, then all the balances of the ledger, the last CDs
that come out, they are put in the trial balance, and then
after the trial balance, if there are any adjustment
entries to be made, then we do that, which we will see in
the financial statement with adjustment chapter and then we
make financial statements, i.e. trading, P&L and balance
sheet, after which the objective of our accounting is
served.
What is the objective of accounting? To find out the profit
loss and to find out the asset or liability, through which
we get trading, P&L and balance sheet.
So friends, what happened to the accounting cycle?
Transactions, identification of transactions, then journal,
then ledger, then trial balance, then adjustment entries,
then trading, P&L and balance sheet, which we also call
financial statements.
All these things are written in this chapter, you have been
taught journal, ledger, trial balance, and if you have not
read the final accounts, then before that you are watching
this video, then how to make a trading, P&L and balance
sheet in the chapter of final accounts, that will be taught.
For now, you will see, it is written here, we have made the
cycle in the form of steps, by circling here, step 1, 2, 3,
4, these are the same things that I just told you,
identifying and recording transactions, then journal
entries, then posting to ledger, then after that trial
balance, then after that adjustment entries, then financial
statements, and our books are closed.
Now, to do this, we can also follow the cash basis of
accounting, to follow the whole accounting process, we can
also do accrual basis and hybrid basis.
What is cash basis? In this, only cash transactions will be
recorded, debt will be ignored. In accrual, cash plus
non-cash, all transactions will be recorded and hybrid is
some kind of a mixture, some transactions on cash basis and
some transactions on accrual basis.
The interesting thing is that many people do not follow the
hybrid basis, in 99% of cases, the accrual basis runs and
doctors, CAs, professionals, their cash basis runs.
You can read out whatever theory you have written, if you
have any problem, you can ask us, we will not read much of
the theory wordwise, because you do not have to give any
exam, our approach is practical.
But yes, you should definitely know the accounting cycle,
what is the accounting cycle, how does it happen, that's
why we have made you do the discussion.