The accounting process & Cycle MBA accounting Notes
The accounting process
(The
accounting Cycle)
The
accounting process is a series of activities that begins a transaction and ends
with the closing of books. Because this process is repeated for each reporting
period, it is referred to as the accounting cycle and includes the following
major steps:
Identify
the transaction or other recognizable event.
Prepare
the source document of the transaction as an order of purchase or invoice.
Analyze
and classify the transaction. This step is to quantify the transaction in
monetary terms (in dollars and cents for example), to identify accounts that
are affected and if these accounts are debited or credited.
Save
the transaction by making entries in the appropriate log as log sales, purchase
log, receipt or payment journal or the journal of various operations. These
entries are made in chronological order.
Validate
the transactions journal entries to the ledger accounts.
Note:
The steps above occur throughout the accounting period that transactions take
place or in the process of recurring orders. The following steps are performed
at the end of the accounting year:
Prepare
the trial balance to ensure debits equal credits. The trial balance, a list of
all accounts of the great book, with speeds in the left column and credits in
the right column. At this stage no entries were made. The actual amount of each
column is not meaningful; What is important is that the sum is equal. Note that
while the imbalance of the columns indicate a registration error, balanced
columns do not guarantee that there are no errors. For example, do not a
registration or registration in the wrong account operation should not cause an
imbalance.
Correct
any discrepancy in the trial balance. If the columns are not in balance, look
for mathematical errors, display and recording errors. Validation errors are:
accounting
for the wrong amount,
the
omission of an assignment,
post
in the wrong column, or
repair
entries in recovery to record accrued, deferred and estimated amounts.
OST
entries to the ledger accounts.
repair
the adjusted trial balance. This step is similar to the preparation of the
unadjusted trial balance, but this time the entries are included. Correct any
errors that may be found.
repair
the financial statements.
Income
statement: prepared from revenues, expenses, gains and losses.
Appraisal:
prepared from the assets, liabilities and capital accounts.
Statement
of retained earnings: prepared from net dividend and income information.
Cash
flow: from other financial statements using the direct or indirect method.
repair
journal entries that ferment of temporary accounts such as revenues, expenses,
gains and losses from closing. These accounts are closed to a temporary income
summary account balance is transferred to the account of undistributed profits
(capital). Any dividend or withdrawal also closed capital accounts.
OST,
closing to the ledger accounts.
repair
the trial balance after closing to ensure debits equal credits. At this stage,
only permanent accounts appear as temporary posts have been closed. Correct any
errors.
repair
journal entries of reverse (optional). Decline in log entries are often used
when there was an accounting exercise or report which was registered as an
adjusting entry on the last day of the accounting period. By reversing the
adjusting entry, avoids double-counting the amount when the transaction occurs
during the next period. A reverse diary entry is recorded on the first day of
the new term.
Instead
of preparing the financial statements before the closure of the journal
entries, it is possible to prepare them later, using an account summary of
temporary to collect income balances temporary ledger accounts (revenues,
expenses, gains, losses, etc.) when they are closed. The temporary income
summary account would then be closed during the preparation of the financial
statements.
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