Accounting Process Overview

Study Notes

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

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 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

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 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 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

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

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 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.

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 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 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