Accounting process

The accounting process is a cyclical activity used by all companies to monitor their business operations. This process is divided into:

The admission phase - This part of the process uses bookkeeping.

The summary phase - All recorded financial transactions are summarized in a correct form and presented as a conclusion.

The clearing or preparation phase - In this step all documents must be closed and summarized in order to continue the activities and to open a new accounting period.

The accounting process consists of three stages: starting a new period, accounting for individual transactions, and closing a period.

Accounting process: start of a new period

To start a new period, all reversing postings from the previous period must be canceled. This prevents double posting of transactions. The cancellation should be carried out automatically by the accounting system.

Accounting process: individual transactions

During the billing cycle, each transaction should be:

identified - what type of transaction it is
prepared - some documents are usually required (invoice, report, etc.)
categorized - Find the correct account to record the transaction
recorded - enter the transaction in the accounting system

Accounting process: closing a period

There are several steps that need to be taken:

  • prepare the balance sheet
  • Prepare financial reports
  • close the period
  • Prepare an account balance after the period

Most of these operations should be done automatically by the accounting system. However, the accountant should know how this works in order to spot errors.

accounting

Accounting - Accounting is a system for creating and processing financial documents. Here financial documents are recorded, communicated and interpreted. The process is used in the preparation of a household budget and in controlling for large companies.

accounting - This process depends on the registration of business transactions in the accounting books. During this process, information is collected and processed. Accounting is a more complex process than bookkeeping.

Financial reports

We can distinguish the three most important degrees:

The balance - This document provides information on assets and liabilities.

The income statement - This document shows the amount of income and expenses that have arisen in a specific period. These statements help to evaluate the result of our work.

The list of changes in the financial position - This document contains information on the sources and use of funds.
Prepare annual financial statements:

At the end of the reporting period and closing all accounts, it is time to close. Documents can be created directly from the data in the invoice books. The data must be organized and presented in a simple and clear manner. The process of preparing the financial statements:

  • Identify all income and expenses.
  • Calculate net income.
  • Calculate the final balance sheet profit.
  • Prepare a balance sheet.

Business transactions

Business transactions are activities, actions or events that are characterized by an exchange of values between two parties. They are the raw materials involved in the accounting process and are in the process of closing.

Accounting information users

Financial information is required for various users about the financial condition of the potential company. Typically accounting information users:

owner - They need information about the amount of the return on the invested capital
management - You need to know how efficiently you are using resources
Banks or creditors - They have to determine the solvency of the borrower
Governments - You need to establish business compliance with taxes and requirements
other users - potential investors, consumers

Bookkeeping as a business language

Information from the department is very important for society and the economy. The accounting department provides the necessary information to make a decision for a company. Accounting depends on management's financial records and specializes in communication. Bookkeeping is often referred to as the "language of business". The financial documents - answers to questions about:

  • distribution
  • Costs and expenses
  • Profit or loss
  • investment
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