There are four bases of any type of accounting system. These four bases are: Recording, classifying, summarizing and interpreting. It is essential that these four steps are followed, as well as good communication between the workers in order for the whole system to run as smoothly as possible.
Below are in-depth explanations of each of the four steps.
• Recording - this is the first and most basic step in accounting. It is also known as bookkeeping. During the recording phase, any financial transactions that take place must be recorded chronologically and in a systematical manner, as well as using the correct databases and books. Accounting recorders may include ledge, journals, invoices and checks, documents, assets, liabilities and the appropriate books.
• Classifying - this phase requires people to sort and group similar financial items under particular names, categories or accounts. This phase will also involve a systematically analyzing recorded data, which is where all transactions that have occurred will be grouped. In the field of accounting, the term 'ledger' is used to refer to a book which records all classifications.
• Summarizing - this phase requires that all data must be summarized after each period of accounting. The accounting period can either be each month, quarterly or at the end of every year. The summarized data must be easy to understand as it will be examined by both people who work and there and people who don't. People who work in this phase may also use graphs or charts to accompany the data.
• Interpreting - this is the final stage of the accounting processes and is very important in decision making. People who work in this stage will look at and interpret the data that has been recorded, classified and summarized in the previous stages. By doing this, these people will be able to come to informed conclusions about a business' financial condition. These people will use the data before them to establish future financial plans.
Below are in-depth explanations of each of the four steps.
• Recording - this is the first and most basic step in accounting. It is also known as bookkeeping. During the recording phase, any financial transactions that take place must be recorded chronologically and in a systematical manner, as well as using the correct databases and books. Accounting recorders may include ledge, journals, invoices and checks, documents, assets, liabilities and the appropriate books.
• Classifying - this phase requires people to sort and group similar financial items under particular names, categories or accounts. This phase will also involve a systematically analyzing recorded data, which is where all transactions that have occurred will be grouped. In the field of accounting, the term 'ledger' is used to refer to a book which records all classifications.
• Summarizing - this phase requires that all data must be summarized after each period of accounting. The accounting period can either be each month, quarterly or at the end of every year. The summarized data must be easy to understand as it will be examined by both people who work and there and people who don't. People who work in this phase may also use graphs or charts to accompany the data.
• Interpreting - this is the final stage of the accounting processes and is very important in decision making. People who work in this stage will look at and interpret the data that has been recorded, classified and summarized in the previous stages. By doing this, these people will be able to come to informed conclusions about a business' financial condition. These people will use the data before them to establish future financial plans.