Comprehensive Steps of Accounting

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    Accounting process is consisting on the seven steps which is also called the Accounting Cycle.           Accounting Cycle contains the seven steps and we’ll show it with the help of a diagram.

    Identifying Business Transaction:

Identifying business transaction means before recording an accounting or financial event we should identify the nature and purpose of transaction and allocate the accounts that are involved in the transaction, one should be on debit side and one should be on credit side. We should analyze the debit account and also the credit account after that we will understand about the transaction.

Posting Transaction in journals:

    After the identification of the transaction next process of Accounting is to record accurately the transaction’s effect on journal. Journal is a Performa for the recording of a transaction’s both effects Debit and Credit with the reference and a description about the accounts involved in the transaction. We will record financial events in journal on a daily basis. 

Posting from Journal to Ledger:

After the completion of journal postings, we’ll post all the entries with a separate account called ledger. Ledger contains every account separately whether its balance is debit or credit. Ledger Accounts shows the effect of one account on more than one accounts.

Recording Adjusted Entries:

Adjusting Entries are the entries that have a effect on both present and future for example, if today you buy raw material on credit from a supplier you should record this entry today and after the completion of credit terms time period you’ll give money to supplier than you’ll also record the transaction it’s called the recording of adjusting entry. The adjusting entries includes Accrued Revenues, Accrued Expenses, Unearned Revenues, Prepaid Expenses and depreciation.

Preparing the Adjusted Trial Balance:

After the recording of adjusted entries, we should prepare the adjusted trial balance containing all the adjusted entries with their balances.

Preparing Financial Statements:

Financial Statements are the reports that are prepared at the end of the accounting period of a business it may be monthly, quarterly or yearly. The financial year also called the fiscal year. Financial statements contain Balance Sheet, Income statement, Cash flow statement and Statement of Owner equity. All the statements are very important to prepare for the preparation of the next period or the taking the financial decisions of a business. Financial statements show the financial position of the business.

Post-Closing Trial Balance:

After the completion of financial statements, we will prepare the Post-Closing trial balance for the start of new accounting period or new financial year we will define the opening balances of the accounts in the post-closing trial balance for the continuous process.

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