The Essence Of Accounting Process

by ryeomark
(Philippines)

Please explain what is the essence of the accounting process.

Comments for The Essence Of Accounting Process Click here to add your own comments

Oct 22, 2009 The Essence Of Accounting Process - Reply by: Anonymous First of all thank you very much for the very first question posted on the Accounting Forum. Now going to the answer, first of all this is correct approach to state that accounting is a process, i.e. certain sequence of actions which are performed step by step in order to account for business transactions and prepare financial statements to the users of the financial data. I would say that accounting process is the same as accounting cycle, which includes 7 steps: 1. Analyze and journalize transactions. Here we will have to analyze all the data during the accounting period and record on the accounting books (i.e. journalize) only those transactions, which had an impact on the financial position of the business 2. Summarize accounts, post summary data to the general ledger. After all the transactions which occured during the accounting were recorded, we should summarize financial data recorded and post it to the general ledger accounts. All the financial data of the business should be specified and allocated to certain accounts, the whole list of which form general ledger. So under this step we have to post the entries from the general journal to the specific general ledger accounts. 3. Trial balance preparation. At the end of the accounting period we will have to summarize all general ledger accounts, i.e. calculate closing balances of those accounts and prepare a trial balance, which is a list of all general ledger accounts, where debits go into one column and credits go into another. There must be equality between these two columns, i.e. debit and credit, which will indicate that all the transactions were properly recorded and posted into the general ledger. X Close Editor Oct 22, 2009 Rating Submitted by: Anonymous Title Comment First of all thank you very much for the very first question posted on the Accounting Forum. Now going to the answer, first of all this is correct approach to state that accounting is a process, i.e. certain sequence of actions which are performed step by step in order to account for business transactions and prepare financial statements to the users of the financial data. I would say that accounting process is the same as accounting cycle, which includes 7 steps: 1. Analyze and journalize transactions. Here we will have to analyze all the data during the accounting period and record on the accounting books (i.e. journalize) only those transactions, which had an impact on the financial position of the business 2. Summarize accounts, post summary data to the general ledger. After all the transactions which occured during the accounting were recorded, we should summarize financial data recorded and post it to the general ledger accounts. All the financial data of the business should be specified and allocated to certain accounts, the whole list of which form general ledger. So under this step we have to post the entries from the general journal to the specific general ledger accounts. 3. Trial balance preparation. At the end of the accounting period we will have to summarize all general ledger accounts, i.e. calculate closing balances of those accounts and prepare a trial balance, which is a list of all general ledger accounts, where debits go into one column and credits go into another. There must be equality between these two columns, i.e. debit and credit, which will indicate that all the transactions were properly recorded and posted into the general ledger. Cancel Delete Delete & Ban Updating Comments page...

Oct 22, 2009 The Essence Of Accounting Process - Reply (Cont'ed) by: Ana Orwel 4. Post period-end adjusting entries. The might be certain transactions, which occurred during past periods, but having impact on future transactions, i.e. depreciation of fixed assets or consumption of inventory. Therefore impact of these transactions must be recorded in the form of period-end adjusting entries. They are posted to the appropriate general ledger accounts, to which they relate. 5. Adjusted trial balance preparation. This step is similar to the step where trial balance is prepared, however adjusted trial balance will include period-end adjusting entries. 6. Preparation of financial statements. After we have prepared correct adjusted trial balance, based on it we can prepare financial statements, which is done by including adjusted trial balance data into the appropriate captions of the financial statements. 7. Close general ledger accounts (revenue/expenses). This is the last step in the accounting process. Certain general ledger accounts, like revenue and expenses, are being used to record financial data for the period and the result, i.e. difference between revenue and expenses has to be transferred to the retained earning account. This is done by closing revenue and expenses accounts and transferring the data from these accounts into the retained earnings balance sheet general ledger account. So in the beginning of the new accounting period revenue and expenses accounts will have zero balances and be prepared for recording new accounting period data. So this is the accounting process. Under Accounting Topics explained you can find more detailed information on the Accounting Cycle with examples. Feel free to explore it. X Close Editor Oct 22, 2009 Rating Submitted by: Ana Orwel Title Comment 4. Post period-end adjusting entries. The might be certain transactions, which occurred during past periods, but having impact on future transactions, i.e. depreciation of fixed assets or consumption of inventory. Therefore impact of these transactions must be recorded in the form of period-end adjusting entries. They are posted to the appropriate general ledger accounts, to which they relate. 5. Adjusted trial balance preparation. This step is similar to the step where trial balance is prepared, however adjusted trial balance will include period-end adjusting entries. 6. Preparation of financial statements. After we have prepared correct adjusted trial balance, based on it we can prepare financial statements, which is done by including adjusted trial balance data into the appropriate captions of the financial statements. 7. Close general ledger accounts (revenue/expenses). This is the last step in the accounting process. Certain general ledger accounts, like revenue and expenses, are being used to record financial data for the period and the result, i.e. difference between revenue and expenses has to be transferred to the retained earning account. This is done by closing revenue and expenses accounts and transferring the data from these accounts into the retained earnings balance sheet general ledger account. So in the beginning of the new accounting period revenue and expenses accounts will have zero balances and be prepared for recording new accounting period data. So this is the accounting process. Under Accounting Topics explained you can find more detailed information on the Accounting Cycle with examples. Feel free to explore it. Cancel Delete Delete & Ban Updating Comments page...

Click here to add your own comments Join in and write your own page! It's easy to do. How? Simply click here to return to Accounting Terms, Definitions, Principles

Want more information on accounting? Learn Accounting Basic with our Accounting Basic Video Course. This is a detailed video course, helping you to learn accounting in a step by step manner. You can watch videos, you can print out video presentations, in this course you will find plenty of explanations and practical examples, which are essential to learn and understand accounting.

Start mastering your accounting skills with Accounting Basic Video Course. Click here to learn more...

What Next?

Subscribe to our RSS feed

Leave Accounting Forum and return to bookkeeping-financial-accounting-resources.com Home page