James Mcavoy
One has to keep the financial documents accurate and that is not an option but is mandatory as stipulated by the regulatory bodies. In order to prepare their financial records, every business follows the basic accounting process. But not every business owner understands them fully so here are few steps to help them understand better:
Simply stated it is nothing but a series of activities that help a business maintain the records in a proper to help them prepare financial statements at the end of the year. It involves recording analyzing transactions, journalizing them, posting them in the general ledger, preparing a trial balance, preparing adjusted entries, doing the adjustment in the journal entries, preparing the financial statements, closing the books.
They are the first step of the accounting process. It may include a sale or return or the cost narrative or the product, purchase of the supplies for business activities or any other business activity that involves the exchange of the assets of the company etc. These activities are recorded with the help of the invoice or bills.
The transactions are then listed in the appropriate journal and it also helps in maintaining the chronological order in which the transaction has occurred. A journal is also called as the “book of original entry” and it is the first place where a transaction is listed.
The transactions are then posted to the account that they impact. These accounts are part of the General ledger in which all the business accounts are summarized.
When the accounting period ends, the trial balance is calculated to make sure that all the debts are meeting the credits. The unadjusted trial balance makes the accounting process easy and provides the balance of all the accounts that may be required in the next step.
They make sure that revenue recognition and the matching principles are followed. They are required as a transaction may have an influence beyond the current accounting period.
If you find that the accounts will be balanced if the adjustments are made, then you post the corrections to the affected accounts.
You prepare the balance sheet and the income statements with the help of the corrected account balances.
At the end of the year, you close the books of accounts and restart the entire cycle with zero balances in those accounts.
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