The Accounting Process is a cycle where a bookkeeper collects, organize, process and close every financial information that a business engages in. The cycle never stops as each accounting year is substantial to the latter. Because as long as the business runs, the owner needs to consistently see the financial health of the company in order for him to mitigate risks in managing the business. And that’s what the accounting process can provide.

What is the Accounting Process?

1) JournalizingA Journal is a book where you record every transaction that the business engages in. That is why you may hear other people referring to journals as the “Books of Original Entry”, because it is where you should write down all transactions at the point when that transaction happened.A journal entry should be always listed in a double entry manner. Each transaction will be debited and credited. It’s important to make this step flawless for the reason that this will be the foundation of the whole accounting accounting cycle.

2) LedgerThe transactions you just recorded in your journal is now organized per account on this step. For example, all journal entries with cash transactions will be transferred to a Cash Ledger. Gathering all credit and debit transactions relating to a single account provides you a clear information of how’s the state of that specific account at a certain period in time. And it additionally makes bank reconciliation easy.

3) Trial BalanceAt the end of an accounting period you’ll calculate a trial balance of the accounts you’ve organized on your ledger. Remember; the total debit should be always equal to your total credit.

4) Adjusting EntriesThe Accrual Basis of Accounting reports expenses associated with revenues when expense occurs and not when cash is received. This method creates unavoidable changes like unrecorded expenses and revenues.Adjust these entries and proceed to the next step.

5) Adjusted Trial BalanceAfter changes are made, prepare an adjusted trial balance. Make sure your debit and credit are still equal after you’ve consider all the changes made when adjusting accrued entries.

6) Financial StatementsNext is the preparation of financial statements (Balance sheet, Income Statement, Cash Flow Statement and Statement of Changes in Equity). The financial statements reflects the end results of the business’ efforts within the accounting period.

7) Closing EntriesTemporary accounts, which includes all income statement accounts, are closed with a zero balance for the next accounting period. Just remember when closing entries are made, only temporary accounts are closed and real or permanent accounts, like all the balance sheet accounts (assets, liabilities, and owner’s equity), are not closed but carried over the next accounting period.

8) Post-closing Trial BalanceAnd finally, the last step of the accounting cycle is to create a Post-closing Trial Balance. This final trial balance contains permanent accounts only; since temporary accounts are already closed. Never forget to balance your ending debit and credit accounts. And you are basically done! You are now ready for the next accounting period.

It’s really important to have the basic knowledge to interpret or just to understand the accounting cycle and all the reports generated in the process. When you’re in the position to make important business decisions, the financial information produced during the accounting cycle can either make or break your company. You should know how much you’re gaining and losing at a given time, track your expenses and spot areas where improvements can be made. Understanding the accounting process will only make you a stronger and competitive businessman.

Thank you for reading through this article. If you want to learn more about basic accounting theories, we offer training sessions; teaching and mentoring non-accountants all the things that they need to know to start talking like an accountant.I hope you learned a thing or two after reading this write-up. If you think you want to further sharpen your accounting knowledge, TrendStatic Business Solutions can offer you technical training services with a course name “Accounting for Non-Accountants”. Inquire today! So you can learn more from the bests in the industry.

What is the Accounting Process?

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