Accounting Process

What is the Accounting Process?

The accounting process refers to the precise duties involved in finishing an accounting method. The duration of an accounting cycle can be monthly, quarterly, half-every year, or yearly. It could vary from company to corporation however the manner remains identical.

The word Accounting brings in conjunction with itself hundreds of years of records and can be traced back to ancient times. Some proofs show that accounting might be more than 7000 years old. 

Types Of Accounting

1. Financial Accounting

Financial accounting records summarize and review firm business transactions through monetary statements. These include the earnings announcement, the stability sheet, the cash flow declaration, and the declaration of retained income. Those economic reviews provide insight into a company’s overall performance to its lenders, buyers, and tax authorities. There are two styles of monetary accounting: cash accounting and accrual accounting.

2. Managerial Accounting 

As per corporate Finance institutions, Managerial accounting is the procedure of identification, measurement, evaluation, and interpretation of accounting data. It allows commercial enterprise leaders to make financial selections and correctly manage their daily operations.

3. Cost Accounting 

As per the definition issued by the Institute of Cost and Management Accounting, Cost accounting is the application of costing and principles that includes methods and techniques as per science, art, and the practice of ascertaining the costs

Cost Accounting = Costing + Cost Control and reduction

Accounts Payable Process

The accounts payable (AP) process is accountable for paying suppliers and companies for items and services bought by the organization. AP departments typically take care of incoming bills and invoices but may additionally serve additional capabilities depending on the dimensions and nature of the business.

Accounting Process Steps

The accounting process steps are mentioned below:

First Step: To Recognize Transactions 

Under this step, the firms basically have so many transactions which we have to record in the books of accounts. To record them we need to first identify by checking the records in sales and purchase transactions.

Second Step: To Record and maintain a Journal

Once you have identified the transactions as a second part we need to record them in the journal.

In a double-entry system of accounting to record transactions, we need to keep some rules in mind among which the basic one is that debit and credit should be equal.

Third Step: Posting the transactions

In this step, once you have created a journal in the proper format, transactions need to be recorded in the ledger format. Recording transactions in ledger format is called the Posting of transactions. Through this method, one can check the financial position of the company and the status of the company.

Fourth Step: Trial Balance Recording

Once the journal and Ledger are prepared as a next step we need to record the trial balance. A trial balance shows the balances in the company which are not adjusted and need to be adjusted to maintain the accounting cycle.

Fifth Step: Ensure Debit is equal to Credit

Once the trial balance record is maintained now, we need to check even if the debit balance is equal to the credit balance or not. So, to check, the company would be adjusting the debit entries with the credit entries by matching revenue and expense using the accrual system of accounting. This involves reconciliation of accounting which basically means that money earned is equal to the money spent.

Sixth Step: To adjust Journal Entries

Once debit is equal to credit, proper adjustments need to be done by the bookkeeper to make the transactions of the company as per the accounting cycle.

Seventh Step: To Make Financial Statements

As we have completed all the adjustments now, we need to create the financial statements of the company. The financial statements include Income Statement, Balance sheet, Cash Flow Statement, Statement of Changes in equity as per the Accounting Standards.

Eighth Step: Closing Books of Accounts

Once Journal, Ledger, and Financial Statements are prepared the company has to close its books of accounts by recording the date of closing. For this, a company needs to provide the analysis report and state the specified period whether it is April to March or January to December.

Once completion of steps by the firm, it ensures that the bookkeeper checks the consistency, accuracy, and financial performance of the company.

Conclusion 

The accounting process can be described as a set that is utilized in identifying, recording, classifying, and interpreting data to maintain the transactions and other activities of the company. 

The accounting procedure consists of the three most necessary components:

• The recording of transactions throughout an accounting period.
• The summarizing of data at the end of the period.
• The presentation of financial statements.