‘The Accounting Process’ itself is quite a vast topic to discuss. There are numerous factors involved in it which finally complete the cycle. The accounting process is also known as the Accounting Cycle. It starts with recording a transaction and ends with the closing of books. There are several methods used to record, analyze and finally close the data as final data of the year. Double checking the transactions recorded, analysis of the data and creating a balance sheet for the upcoming year is also a part of this process.
There are 5 major steps which complete the accounting process. The following are the 5 steps:
Identification of a transaction or any other similar event which needs to be recorded is the first step in the accounting process. The accountant needs to recognize whether this event is of any value to the accounting books of the company or not.
The second step is to prepare the source document of the transaction. The source document can be a promissory note, an invoice and so on. Without the creation of this document, it won’t be possible to record the transaction.
Analyzing and classifying the transactions refers to quantifying the transaction in monetary terms. This means that the money paid or the credit created should be present for recording.
This part includes recording the transactions into the journals. There are different journals such as the purchase journal, sales journal and so on. Each transaction needs to be recorded in its respective journal.
By transferring the entries to the ledgers and then finally into the balance sheets and income statement, a double check is made on the credibility of the transactions. In various cases, while transferring the transactions to the ledgers, faults are spotted in recording.
These are the five basic steps of the accounting process. Without these steps, it is impossible for an organization to check the profit and loss of the year.