The Accounting Process Flashcards
The process is also known as the accounting cycle, which refers to the overall steps involved in recording, classifying, and processing a company's transactions from their occurrence until they are represented in the financial statements. (10 cards)
List the nine steps in the accounting process.
- Collecting and analysing documents.
- Posting to the journal.
- Posting to the ledger.
- Preparing the unadjusted trial balance.
- Adjusting entries.
- Adjusting the trial balance.
- Preparing the financial statements.
- Closing the books.
- Preparing the post-closing trial balance.
What takes place in the 1st step of the accounting process?
Documentation such as cash, bank slips, sales invoices, and purchase agreements is examined.
What takes place in the 2nd step of the accounting process?
Transactions are posted to the journal with explanations using double-entry bookkeeping, where each transaction affects two accounts—one debited and one credited—ensuring debits and credits always balance.
What takes place in the 3rd step of the accounting process?
- Journal entries are posted to the general ledger, which holds all accounts. After posting, account balances are calculated to determine the closing balances needed for the trial balance.
What takes place in the 4th step of the accounting process?
A trial balance summarises the ledger accounts for a specific accounting period and lists both debit and credit columns totals, which should match. If discrepancies are found, corrective entries are made to fix the errors.
What takes place in the 5th step of the accounting process?
In accrual accounting, unrecorded expenses and incomes at period-end are updated through accrual adjustments.
What takes place in the 6th step of the accounting process?
After adjustments, an adjusted trial balance is prepared, ensuring that the debits and credits balance, and it is used to create the financial statements.
What takes place in the 7th step of the accounting process?
After balancing the accounts, financial statements—mainly the balance sheet, income statement, and cash flow statement—are prepared. Although called annual financial statements, they may also be prepared quarterly or biannually.
What takes place in the 8th step of the accounting process?
Revenue and expense accounts are closed and zeroed by transferring their balances into permanent accounts to prepare for the next accounting cycle.
What takes place in the 9th step of the accounting process?
The final accounting step confirms all transactions are properly recorded, analysed, and summarised, with debit and credit balances matching.
