Accounting Process Overview

Accounting Process Overview

The accounting process is a series of steps used to record, classify, and report financial transactions of a business. It involves several key steps:

Journal Entries

• A journal entry is a record of a financial transaction in a journal or book
• Journal entries are used to record day-to-day transactions, such as sales, purchases, and payments
• Each journal entry includes:
  • Date of the transaction
  • Debit and credit amounts
  • Accounts affected (e.g. Cash, Accounts Receivable, etc.)
  • Brief description of the transaction

Ledger Posting

• Ledger posting is the process of transferring journal entries to the ledger accounts
• The ledger is a collection of accounts that show the changes in each account over time
• Ledger posting involves:
  • Debiting one account and crediting another account
  • Updating the ledger accounts to reflect the changes

Trial Balance

• A trial balance is a list of all general ledger accounts and their corresponding debit or credit balances
• The trial balance is prepared to ensure that the debits and credits are equal
• The trial balance is used to:
  • Identify errors in journal entries or ledger posting
  • Prepare financial statements

Account Reconciliation

• Account reconciliation is the process of verifying the accuracy of a ledger account balance
• Reconciliation involves comparing the ledger account balance with an external statement, such as a bank statement
• The purpose of account reconciliation is to:
  • Identify and correct errors
  • Ensure the accuracy of financial statements

Financial Statements

• Financial statements are reports that provide information about a company's financial position and performance
• The four main financial statements are:
  1. Balance Sheet: shows the company's financial position at a specific point in time
  2. Income Statement: shows the company's revenues and expenses over a specific period of time
  3. Cash Flow Statement: shows the company's inflows and outflows of cash over a specific period of time
  4. Statement of Changes in Equity: shows the changes in the company's equity over a specific period of time
• Financial statements are used to:
  • Provide information to stakeholders (e.g. investors, creditors)
  • Make business decisions
  • Evaluate the company's financial performance

Accounting Process Overview

• The accounting process involves recording, classifying, and reporting financial transactions of a business.

Journal Entries

• A journal entry records a financial transaction in a journal or book.
• It includes:
• Date of the transaction
• Debit and credit amounts
• Accounts affected (e.g. Cash, Accounts Receivable, etc.)
• Brief description of the transaction
• Journal entries are used to record day-to-day transactions, such as sales, purchases, and payments.

Ledger Posting

• Ledger posting involves transferring journal entries to the ledger accounts.
• The ledger is a collection of accounts that show changes in each account over time.
• Ledger posting involves debiting one account and crediting another account.
• It updates the ledger accounts to reflect the changes.

Trial Balance

• A trial balance is a list of all general ledger accounts and their corresponding debit or credit balances.
• The trial balance is prepared to ensure debits and credits are equal.
• It is used to:
• Identify errors in journal entries or ledger posting
• Prepare financial statements

Account Reconciliation

• Account reconciliation verifies the accuracy of a ledger account balance.
• Reconciliation involves comparing the ledger account balance with an external statement (e.g. bank statement).
• Its purpose is to:
• Identify and correct errors
• Ensure the accuracy of financial statements

Financial Statements

• Financial statements provide information about a company's financial position and performance.
• The four main financial statements are:
• Balance Sheet: shows the company's financial position at a specific point in time
• Income Statement: shows the company's revenues and expenses over a specific period
• Cash Flow Statement: shows the company's inflows and outflows of cash over a specific period
• Statement of Changes in Equity: shows the changes in the company's equity over a specific period
• Financial statements are used to:
• Provide information to stakeholders (e.g. investors, creditors)
• Make business decisions
• Evaluate the company's financial performance

Learn about the accounting process, including journal entries, and how to record, classify, and report financial transactions of a business.