What are accounting procedures? Accounting Process
Accounting is used by most traders today. In such a situation, accounting has to go through various processes. The process of accounting is very essential for a businessman and auditor. Before knowing the process of accounting, you should have a clear knowledge of accounting.
What is the process of accounting?
The accounting process refers to recording, summarizing, interpreting the transactions done in the business, and preparing the financial statements at the end of the year. In this way, the process of accounting is of vital importance in a business.
Explain the accounting process
The accounting process is not a trivial task that can be completed in an instant. It has to go through several stages, then the process of accounting is completed. Which are given below –
1. Recognizing Financial Transactions
2. Preparation of Receipts or Authenticators
3. Maintaining Journals or Journals
4. Creating Ledgers
5. Checking for accuracy and veracity
6. Preparation of Final Accounts
1. Recognizing Financial Transactions
This is the initial step in the accounting process. In which deals of financial nature are identified out of various transactions done in business.
Note – In accounting, only financial transactions are recorded which can be measured in terms of money.
2. Preparation of Receipt or Authenticator
Receipt or Validator is made on the basis of original documents. There should be registered in the name of the voucher firm or shop. On which the name, address, date and about the firm are written.
3. Making Journal or Journal
As you would know, whatever transactions happen in the business first, it is recorded date wise in the initial books which is called the original book. This book i.e. this book is called “Roznamcha”. Journal is prepared on the basis of first and second stage of the accounting process.
4. Ledger making
All the processes of accounting are related to each other. By the way, all have their own importance. After the journal is prepared, many entries of different types present in it have to be written on the right side. On the basis of this, there should not be any obstacle in the further process. According to the type of entries made, they are written in the ledger. Simultaneously, the balance of all accounts is withdrawn.
The Journal is divided into 8 subsidiary books.
5. Checking the correctness and correctness
By the way, all the activities you have done behind are completely pure i.e. showing the correct results. For this “trial balance” is prepared. In the fourth stage of the accounting process, the balance of all the accounts is drawn. The debit balance is written on the debit side of the trial balance and the credit balance is written on the credit side. Then after this, the sum of debit and credit balances is taken out and as a result both (debit and credit) are equal, then it is considered pure.
6. Preparation of Final Account
This is considered to be the most important step in the process of accounting. Every business or company prepares the final account, also known as the financial statement. The primary basis for preparing the Financial Statement Account is Trial Balance. Mainly three accounts are opened under the Financial Statement or Final Account –
How many stages are there in the accounting process?
There are 8 main stages of the accounting process, out of which 7 are given above and the remaining 2 are as follows-
1. Analysis and selection
Under this, various accounting ratios are calculated, showing the business’s liquidity, solvency and profitability. Based on which decisions can be taken as per the requirement.
2. Conveyance of Results
Lastly, the decision is taken on the basis of analysis and election of summarized records of financial statements. This work is done by a professional person.
‘Accounting process is also called the accounting cycle.’
What are the final stages of accounting?
In the last stage of accounting financial statements i.e., final accounts are prepared under which mainly 3 accounts are opened-
1. Trading Account
2. Profit & Loss Account
3. Balance Sheet
Gross profit and loss are known by creating a trading account. By making Profit & Loss Account, the net profit and loss are known, and by making a Balance Sheet, the financial position of the business is known.