Financial Accounting for Managers, 3rd Edition

3

Accounting Cycle

CHAPTER OBJECTIVES

This chapter will help the readers to:

• Understand the accounting process leading to the preparation of the profit and loss account, and the balance sheet.
• Differentiate between real accounts, personal accounts and nominal accounts.
• Apply the rules for debiting or crediting different types of accounts.
• Understand the process of ledger posting, balancing of accounts and preparation of trial balance.
• Prepare the profit and loss account, and the balance sheet from a given trial balance and year-end adjustment entries.

3.1 INTRODUCTION

Financial statements—the profit and loss account and the balance sheet—convey useful information about the financial health of a business enterprise. Every manager is expected ...