The Accounting process |
Once all transactions are identified, such transactions are classified and analyzed to identify the effects of such transactions in terms of whether they are to be debited or credited. Such transactions are then entered into appropriate journals such as Cash receipt journal, purchase journal and general journal. Such entries are made in chronological order. In many cases such entries are entered as soon as the transaction takes place in order to keep accurate logs of what is happening in your business. Functions that are performed at the end of a cycleAt the end of the cycle, accountants are required to balance the books, this basically is a way of saying that at the end of the cycle all debits must be equal to all credits. This is usually achieved by using what is called the trial balance. It lists all ledger accounts with debits on the left and credits on the right columns. Using modern computer programs, people now have a choice of looking at the summaries in which case you only look at the balances, but also have a chance to drill down to individual transactions. What is important in this document is not the amount, but whether or not the credit and debit sides of the document are equal. If the two sides are not equal, then look for the following possible sources of errors : Possible sources trial balance errors:
Obviously, once such errors are found, they are fixed by what in accounting terms is called adjustments before a final and adjusted trial balance is presented to business decision makers. Once the trial balance is in order, accountants are then required to prepare financial statements including the income statement, Statement of retained earnings, Cash flow statement and balance sheet. Once all that is done, closed entries are then posted to the ledger accounts. |
RELATED ARTICLES:
Accounting Terminology
Sales and revenue mean the same thing. This is money that comes from customers. Profit, Earnings and income also mean the same thing. This is money left after subtracting expenses and costs. This is also referred to as "bottom line". Note: Cash is
Introduction to Accounting
The difference between Accounting and Business finance
So far you might have seen a lot of overlap between our Accounting and Business sections. After all, they both talk about financial statements and reporting. So where exactly is the difference between the two? Well, Accounting - deals with collecting, analyzing and communicati
Introduction to Accounting
Accounting can be defined as "a means of communication among all segments of the business". It provides reliable or at least relevant financial information useful for making business decisions. Main users of accounting information are external users such as investors and owners, cre
How to measure your business financial position and performance
As mentioned in the previous postings, accounting comes in two forms: Financial accounting - which is concerned with providing the overall financial picture of the business' financial position and performance. and Management Accounting - which is conc
The balance sheet
In business, money is never created. It is either earned or spent; and as such every penny should be accounted for. The basic law of accounting states that value to the owners include, what the business have less what the business owe to others people, vendors and/or banks. In account
Business finance - Basics
Anyone who runs a business will tell you that you can not start a business with nothing. Every business is started with money or something with a monetary equivalent. Suppose you decide to start a business to produce and sell fresh vegetables. To do this, you either hire people to hel
Internet for beginners
What is the Internet? The Internet" refers to the worldwide network of interconnected computers, that use a common protocol known as TCP/IP to communicate with each other. Every personal computer, web server, cell phone or other device that people
Fractions - Basics
A fraction is defined to be "a component or part of a whole".
Basic Structures