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Financial Accounting: Daksh Gautam 22/834 Topic: Accounting Process

The document outlines the 9 key steps in the accounting process: 1) Identifying and analyzing business documents and transactions 2) Recording transactions in journals using double-entry bookkeeping 3) Posting journal entries to ledger accounts to calculate account balances 4) Preparing a trial balance to test equality of debits and credits 5) Entering adjusting journal entries for accruals and deferrals 6) Preparing an adjusted trial balance after adjustments 7) Creating financial statements like the income statement and balance sheet 8) Making post-closing entries to clear revenue and expense accounts 9) Preparing a post-closing trial balance to close the accounting cycle

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Daksh Gautam
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53 views

Financial Accounting: Daksh Gautam 22/834 Topic: Accounting Process

The document outlines the 9 key steps in the accounting process: 1) Identifying and analyzing business documents and transactions 2) Recording transactions in journals using double-entry bookkeeping 3) Posting journal entries to ledger accounts to calculate account balances 4) Preparing a trial balance to test equality of debits and credits 5) Entering adjusting journal entries for accruals and deferrals 6) Preparing an adjusted trial balance after adjustments 7) Creating financial statements like the income statement and balance sheet 8) Making post-closing entries to clear revenue and expense accounts 9) Preparing a post-closing trial balance to close the accounting cycle

Uploaded by

Daksh Gautam
Copyright
© © All Rights Reserved
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Download as PPTX, PDF, TXT or read online on Scribd
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FINANCIAL ACCOUNTING

Daksh Gautam
22/834
B.COM(P)
Topic: Accounting process
WHAT IS ACCOUNTING PROCESS?

Accounting cycle or process refers to the specific tasks


involved in completing an accounting process. The length
of an accounting cycle can be monthly, quarterly, half-
yearly, or annually. It may vary from organization to
organization but the process remains the same.
ACCOUNTING PROCESS
STEP 1: IDENTIFYING AND ANALYZING
BUSINESS DOCUMENTS
The process starts with identifying and analyzing business events and
transactions. Not every transaction and event is entered into the
accounting system. Only those which pertain to a business entity are
included.

The business document serves as a basis for recording a transaction. The


process is repeated throughout the accounting period.
STEP 2: POSTING IN JOURNAL
On the basis of the above documents, you pass journal entries using the double-entry
system.
A double-entry system of bookkeeping is used for recording financial transactions and
events. Every transaction should have one debit and credit, and the number of debits
must be equal to the number of credits.
Special journals are used for repeated transactions like purchase, cash disbursement,
and sales. Whereas general journals record transactions that cannot be entered in
special books.
The process is repeated throughout the accounting period.
STEP 3: POSTING IN LEDGER
ACCOUNTS
Debit and credit balance of all accounts affect through journal entries which are posted
in ledger accounts. A ledger is known as ‘Books of Final Entry’, the collection of
funds that shows the changes made to each account due to current balances and past
transactions.
After posting transactions to the ledger, the balances of each account can be
determined.
For instance: All journal record debits and credits made to cash would be carried into a
cash account in the ledger. Thus, will be able to calculate the increase and decrease in
cash, ending the balance of cash as determined.
STEP 4: PREPARATION OF TRIAL BALANCE

A trial balance is a record that displays the balances, or a total of credits


and debits, of all accounts in the ledger.
It is essential in the accounting process and is prepared to test the equality
of debits and credits. All account balances are fetched from the ledger and
arranged in one report.
It showcases all accounts’ final position and helps prepare financial
statements, i.e. balance sheet and income statement.
STEP 5: POSTING OF ADJUSTING ENTRIES

Adjustment entries are initially passed through the journal and


followed by posting in ledge accounts and finally in the trial
balance. This is the process that is performed at the end of each
accounting process.
The accrual basis of accounting is used to find out the correct
value of expenses, revenue, assets and liabilities account.
STEP 6: ADJUSTING TRIAL BALANCE

Various adjustments are made in accounts at the end of the


accounting period before the preparation of the final trial
balance. It may be prepared after adjusting entries that are made
before the preparation of financial statements.
This is to examine if the debits are equal to the credits after
adjusting entries are made.
STEP 7: FINANCIAL STATEMENTS

Financial statements are a set of statements like Income and


expenditure account or profit and loss and trading account, fund
flow statement, cash flow statement, balance sheet or statement
of affairs account.
Financial statements show the financial health of the firm by
depicting its profit or losses. It is the end products of any
accounting system.
STEP 8: POST-CLOSING ENTRIES
All accounts concerning the firm's revenue and expenditure are
then transferred to the trading and profit and loss account. The
balance then, with the help of the results come to NIL.
The net balance of these entries represents the profit or loss of
the company that is transferred to the owner’s equity or capital
finally.
STEP 9: POST-CLOSING TRIAL
BALANCE
In the accounting cycle, the last step is to prepare a post-closing
trial balance. It is prepared to test the equality of debits and
credits after the closing entries. It contains real accounts, and
these balances are transferred to the next financial year as an
opening balance.
THANK YOU

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