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    Accounting process - personal

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    tempforthering
    The financial accounting process involves identifying, recording, and posting transactions, preparing trial balances, making adjusting entries, and ultimately preparing financial statements. This cyclical process ensures accurate and compliant financial records for effective decision-making by management and stakeholders. Key steps include closing entries and reviewing financial performance at the end of each accounting period.

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    Accounting process - personal

    Uploaded by

    tempforthering
    2 views2 pages
    The financial accounting process involves identifying, recording, and posting transactions, preparing trial balances, making adjusting entries, and ultimately preparing financial statements. This cyclical process ensures accurate and compliant financial records for effective decision-making by management and stakeholders. Key steps include closing entries and reviewing financial performance at the end of each accounting period.

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    Accounting process - personal

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    The financial accounting process involves identifying, recording, and posting transactions, preparing trial balances, making adjusting entries, and ultimately preparing financial statements. This cyclical process ensures accurate and compliant financial records for effective decision-making by management and stakeholders. Key steps include closing entries and reviewing financial performance at the end of each accounting period.

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    Download as TXT, PDF, TXT or read online from Scribd
    Download as txt, pdf, or txt
    2 views2 pages

    Accounting process - personal

    Uploaded by

    tempforthering
    The financial accounting process involves identifying, recording, and posting transactions, preparing trial balances, making adjusting entries, and ultimately preparing financial statements. This cyclical process ensures accurate and compliant financial records for effective decision-making by management and stakeholders. Key steps include closing entries and reviewing financial performance at the end of each accounting period.

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    ### 1.

    **Identifying Transactions**
    The first step in the financial accounting process is identifying and analyzing
    business transactions. These transactions are economic events that affect the
    financial position of the business and must be recorded. Examples include sales,
    purchases, payments, receipts, and borrowings.

    ### 2. **Recording Transactions (Journal Entries)**


    Once transactions are identified, they are recorded in the company's accounting
    records using journal entries. Each transaction affects at least two accounts and
    is recorded using the double-entry bookkeeping method, where debits must equal
    credits.

    ### 3. **Posting to the General Ledger**


    After transactions are recorded in the journal, the next step is posting them to
    the general ledger. The general ledger contains all the individual accounts of the
    business, such as cash, accounts receivable, inventory, and accounts payable. Each
    journal entry is posted to the appropriate accounts in the general ledger.

    ### 4. **Preparing the Trial Balance**


    At the end of an accounting period, a trial balance is prepared. The trial balance
    lists all the accounts from the general ledger along with their debit or credit
    balances. The total debits should equal the total credits, ensuring that the books
    are balanced.

    ### 5. **Adjusting Entries**


    Adjusting entries are made to account for revenues and expenses that have been
    earned or incurred but not yet recorded. These adjustments are necessary to comply
    with the accrual basis of accounting, which matches revenues and expenses to the
    period in which they are earned or incurred. Common adjustments include accruals,
    deferrals, depreciation, and inventory adjustments.

    ### 6. **Preparing Adjusted Trial Balance**


    Once all adjusting entries have been made, an adjusted trial balance is prepared.
    This updated trial balance reflects the changes made through the adjusting entries
    and is used to prepare the financial statements.

    ### 7. **Preparing Financial Statements**


    Using the adjusted trial balance, the main financial statements are prepared in the
    following order:
    - **Income Statement**: Shows the company’s revenues and expenses over a
    specific period, resulting in net income or net loss.
    - **Statement of Retained Earnings**: Reconciles the beginning and ending
    retained earnings, showing the impact of net income and dividends.
    - **Balance Sheet**: Provides a snapshot of the company’s financial position at
    a specific point in time, showing assets, liabilities, and equity.
    - **Cash Flow Statement**: Details the cash inflows and outflows from operating,
    investing, and financing activities over a period.

    ### 8. **Closing Entries**


    After the financial statements are prepared, closing entries are made to reset the
    balances of temporary accounts (revenues, expenses, and dividends) to zero for the
    next accounting period. This process transfers the balances of these temporary
    accounts to the retained earnings account.

    ### 9. **Preparing Post-Closing Trial Balance**


    A post-closing trial balance is prepared to ensure that all temporary accounts have
    been closed properly and that the total debits still equal total credits. This
    trial balance includes only permanent accounts (assets, liabilities, and equity).
    ### 10. **Review and Analysis**
    The final step involves reviewing the financial statements and other reports to
    analyze the financial performance and position of the business. Management uses
    this information for decision-making, planning, and controlling business
    operations.

    ### Summary
    The financial accounting process is cyclical and repeats every accounting period
    (monthly, quarterly, annually). By following these steps, businesses ensure that
    their financial records are accurate, complete, and compliant with accounting
    standards, which is essential for internal management, investors, creditors, and
    regulatory agencies.

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