Short Cycle of Accounting

It is very important for entrepreneurs to know the accounting cycle so that when each business transaction can be reviewed easily. For example, when we look at the financial statements, we see that spending on advertising is higher than the previous month. So, we want to review the list of expenses for the advertising, whether we have any wrong records, or if there are items that may not be spent. So we will look to the advertising ledger to find the cause.

Okay let's briefly identify the accounting cycle.

Business Document Resources

When we buy goods for business, it is certain that there is a document that states what goods are bought, the price and the date of purchase. Examples of such documents are receipts and invoices. As traders/entrepreneurs, we need to keep this document well so that it can be used as a reference to review transaction records.

Journal

This journal is like a listing that we record every outgoing and incoming transaction. Usually in this Journal we will record the date of the transaction, goods or things bought or sold, details of the purchase, category and price. Examples of transaction categories include Advertising, Rent, Salary, Water & Electricity and Stationery.

Ledger

The ledger will briefly list each transaction based on the category category in the journal. For example, expenses recorded in the Journal, categorized under Advertising will be listed in the Advertising Ledger. where expenses for Stationery will be listed in Stationery.

Profit and Loss Statement

Once all business transactions have been recorded in the Journal, and listed in the Ledger, we will also record the total amount of each Ledger into the Loss Statement. So, the Loss Statement is like a summary for business transactions in a certain period.

Here I make an example of a transaction to make it easier to understand. Ali is a furniture dealer. He bought some pens, paper and books for business use amounting to RM100. After making the payment, the seller gave Ali a purchase receipt.

Then, Ali recorded the purchase in the Journal. In the Journal, Ali recorded the details of the purchase of "Pens, Paper and Books" and categorized the purchase transaction in the "Stationery" category along with the price of RM100. Indirectly, in the Stationery Ledger there will be a record of the purchase of "Pens, Papers and Books" amounting to RM100.

If there are no more stationery purchases during the financial period, then the financial statement will show the amount of stationery that has been spent during that period is RM100. If Ali wants to look back at what items were purchased for the Stationery, Ali can refer back to the Ledger and check again with the purchase receipt to ensure that the records are correct.