Accounting is used for quantitative information of finances. But what is the accounting process and what's best for your design practice? Read on to find out.
Nor every company has an accounts department that looks after the accounting details of the company but accounting is important. An accounting department is the backbone of every business. It records all the business transactions and keeps a track of the incomes and expenses of the business. The business depends on these incomes for its profits and should know all the expenses that are incurred to keep it going. They also determine the correct financial position and financial standing of the business. All this makes the recording of transactions important. For the systematic and accurate recording of the transactions, accounting is important. For accurate accounting of transactions, an accounting process is essential. Let us understand the accounting process in detail.
The accountant should know the accounting process well so that there is no confusion in recording the transactions. Following the correct accounting process is mandatory as per accounting ethics and it also helps to understand and communicate the financial operations of your design firm. The following paragraphs are devoted to complete understanding of the accounting process.
Accounting Process Definition
The purpose of accounting is recording all the transactions honestly and accurately in the books of accounts. The accounting process is the method followed by the accountants to record the transactions. The accounting process can be defined as "the process that begins when the transaction takes place and ends when the transaction is recorded in the books of accounts". It is a series of procedures that are used to analyze and record the business transactions for a particular period of time.
The Accounting Process
The accounting process, also known as the accounting cycle process, includes the below mentioned steps. In order to follow these steps, you will need to know all the accounting principles and concepts well.
•The first step involves identifying the transaction and finding the source documents of the transaction.
•Analyze which accounts is the transaction affecting and what is the amount of the transaction.
•Record the entry into the journal as a credit or debit, according to its nature.
•Transfer the journal entries into the appropriate accounts in the ledger.
•A trial balance is then created which sees to it that the debit amount equals the credit amounts.
•Correct the discrepancies in the trail balance and balance the debit side with the credit side.
•Make adjusting entries in order to record the accrued and deferred amounts.
•Next, prepare the adjusted trial balance on the basis of the deferred amounts.
•Prepare the financial statements like the income statements, the balance sheet, retained earnings statements and finally the cash flow statements.
•Close the temporary accounts like revenues, expenses, gains, etc. by closing journal entries. These accounts are transferred to the income summary account and later posted into the capital accounts.
•Prepare the final trial balance on the basis of the closing journal entries.
There can be a slight alteration to the above accounting process flow. The financial statements can be made before the adjusting entries. Also, some companies add another step after the final trial balance. This step is called as reversing entries step. Reversing entries is done if an accrual or deferral entry was recorded earlier and needs to be adjusted to avoid a double entry. It is recorded on the first day of a new recording period. All the accountants follow the same accounting process sequence, except for the reversing entries. That is an optional step which may or may not be followed.
By Deeptee A
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