What is Accounting Processes?
A sequence of activities involving the recording of how cash is received and paid out in a company or organization. The accounting process in business is based on four accounting methods, which are: the accrual method, the consistency method, the prudence method and the going concern method.
The accounting process is actually three separate types of transactions. The first transaction type is to ensure that reversing entries from the previous period have, in fact, been reversed. The second group is comprised of the steps needed to record individual business transactions in the accounting records. The third group is the period-end processing required closing the books and producing financial statements. We will address these three parts of the accounting process below.
Beginning of Period Processing:
Verify that all transactions designated as reversing entries in preceding periods have actually been reversed. These transactions are usually flagged as being reversing entries in the accounting software, so the reversal should be automatic. Nonetheless, examine the accounts at the beginning of the period to verify the reversals. It is quite possible that a reversing flag was not set, and so an entry must be reversed manually, with a new journal entry. The accounting cycle is a sequential series of activities used to identify and record an entity’s individual transactions, which are then aggregated at the end of a reporting period into financial statements. The accounting cycle is essentially the core recordation activity that an accounting department engages in on an ongoing basis, and forms the basis for the financial statements. Most accounting controls and procedures relate to the accounting cycle.
Examples of such events are: * Buy materials * Pay wages to employees * Apply overhead to inventory and the cost of goods sold * Sell goods to customers * Provide services to customers * Receive payment from customers * Recognize an expense
The 10 steps in the accounting processing cycle are listed in Graphic 2–3. Steps 1–4 take place during the accounting period while steps 5–8 occur at the end of the accounting period. Steps 9 and 10 are required only at the end of the year.
1. Generally accepted accounting principles Ethics in financial reporting Assumptions Define Accounting? Building Blocks of Accounting Equation Using the Accounting Equation Financial Statements Definition of three activities who uses accounting data Liabilities Assets Stockholders’ equity Summary of transactions Transaction analysis Retained earnings statement Income statement Balance sheet Statement of cash