Explain And Describe The Accounting Process?


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Beth Kennedy Profile
Beth Kennedy answered
The basic accounting process is a common financial feature of running, or helping to run, any business. At the start of the process there is a transaction and at the end the books are "closed". The basic accounting process includes:

  • Analyzing and classifying the transaction
  • Preparing the trial balance
  • Preparing financial statements
  • Preparing and reversing journal entries
To analyze and classify the transaction the source document must be prepared. This could be an invoice or a purchase order. The transaction must be quantified in monetary terms (i.e in the currency you require) and all affected accounts should be identified. All transactions should be determined as a credit or a debit and should be in chronological order.

Preparing the trial balance involves ensuring that credits are balanced to the debits. Debits should be in the left column and credits should be in the right. It is important to look for any errors. This can include posting the wrong amount, omitting a posting, posting in the incorrect column or creating multiple posts.Accrued, deferred and estimated amounts are needed to prepare the adjusting entries. The adjusting entries should then be posted to the ledger accounts.

Preparing the financial statement entails the income statement, balance sheet, statement of retained earnings and the cash flow statement. The closing journal entries are then prepared. This includes revenues, expenses, gains and losses. Dividend or withdrawal accounts are closed to capital. The closing entries are then posted to the ledger account.

Preparing and reversing the journal entries is optional. This is usually done when an accrual or deferral has occurred. Financial statements can be prepared before or after closing entries. This can be done using a temporary income summary account to gather temporary ledger account balances.

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