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Stats: 17,989 Members, 73,294 Topics, 15,958 Comments. Date: Sep 21 2019, 10:09 am

QUESTION: Define Basic Accounting Process [Solved]

Nigeria Student Forum / Questions / Marketing Department / Define Basic Accounting Process

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Answered: Define Basic Accounting Process 3:10pm on March 9
Fadeyi Oluwaseun
Ladoke Akintola University Ogbomosho
B.tech Marketing Management
200Level, Nigeria.
The accounting process is the collection, recording, organizing, summarizing, interpreting and communicating financial information to the user in such a way to permit informed judgment and decision or rational economic decision. The utility of accounting information is greatly increased when it has complied in a systematic manner and financial statements prepared at periodic intervals. Because this process is repeated in each reporting period. The accounting process is also known as the ACCOUNTING CYCLE. The following are the major step in the accounting process:

1. Collecting and analyzing accounting documents
2. Posting in journal
3. Posting of ledger account
4. Preparation in a trial balance
5. Posting of adjustment entries
6. Adjusted trial balance
7. Preparation of financial statement
8. Posting-closing entries
9. Post-closing trial balance

1. Collecting and Analyzing Accounting Document: It is very in which you examine the source documents and analyzes them. For example, cash, bank, sales, and purchase related documents. This is a continuous process throughout the accounting period.

2. Posting in Journal: On the basis of the above documents, you pass journal entries using a double entry system in which debit and credit balance remain equal. This process is repeated throughout the accounting period.

3. Posting in Ledger Accounting: Debit and credit balance of the above accounts affected through journal entries are posted in ledger accounts. A ledger is simply a collection of all accounts. Usually, this is also a continuous process for the whole accounting.

4. Preparation in Trial Balance: As the name suggests, the trial balance is a summary of all the balances of ledger accounts irrespective of whether they carry a debit balance or credit balance. Since we follow a double entry system of accountability, the total of the entire debt and credit balance has appeared in trial balance remain equal. Usually, you need to prepare a trial balance at the end of the said accounting period.

5. Posting of adjustment entries: In this step, the adjustment entries are first passed through the journal, followed by posting in ledger accounts, and finally in the trial balance. Since in most of the cases, we used the accruals basis of accounting to find out the correct value of revenue expenses, asset, and liabilities accounts, we need to do this adjustment entries. This process is performed at the end of each accounting period.

6. Adjusted trial balance: Taking in to account the above adjustment entries, will create adjusted trial balance. An adjusted trial balance is a platform to prepare the financial statement of a company.

7. Preparation of financial statements: Financial statement is the set of statements like income and expenditure account or trading and profit and loss account, cash flow statement, fund flow statement, balance sheet or statement of affairs account. With the help of trial balance, we put all the information into the financial statement. Financial statements clearly show the financial health of a firm by depicting its profits or losses.

8. Posting-closing entries: All the different accounts of revenue and expenditure of the firm are transferred to the trading and profit and loss accounts. With the result of these entries, the balance of all the accounts of income and expenditure accounts come to NILL. The net balance of these entries represents the profit or loss of the company, which is finally transferred to the owner equity or capital.

9. Posting-closing trial balance: Post-closing trial balance represents the balances of assets, liabilities and capital account. These balances are transferred to the next financial year as an opening balance.

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