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Recording Process of accounting Events

  • The recording process of accounting events is a crucial step in the accounting cycle that involves capturing and summarizing financial transactions within a business.
  • This process is fundamental for creating accurate financial statements and reports.

Here are the steps involved in the recording of accounting events:

accounting cycle steps
  • The first step in the accounting cycle is to identify your business’s transactions, such as vendor payments, sales, and purchases. It’s helpful to also note some other details to make it easier to categorize transactions.
  • Important information to identify includes:
    • Transaction dates.
    • Product prices.
    • Amounts paid.
  • Once you identify your business’s financial accounting transactions, it’s important to create a record of them. You can do this in a journal, or you can use accounting software to streamline the process. 
  • A few things to remember when recording transactions:
    • Maintain chronological order of transactions.
    • Ensure credits  balance each other out when using double-entry accounting.
    • Include important notes for the accountant for easier reconciliation.
  • The next step in the accounting cycle is to post the transactions to the general ledger. Think of the general ledger as a summary sheet where all transactions are divided into accounts. It lets you track your business’s finances and understand how much cash you have available.
  • Once posted to the general ledger, you need to balance all of your business’s transactions. Do this at the end of the accounting period, which can be monthly, quarterly, or annually, depending on the company. Known as the “trial balance,” this provides insight into the financial health of your company and can help you identify any discrepancies in your bookkeeping.
  • The next step is worksheet analysis. Use a worksheet to balance your company’s debits and credits. If you have debits and credits that don’t balance, you have to review the entries and adjust accordingly.
  • Before you create your financial statements, you need to make adjustments to account for any corrections for accruals or deferrals.
  • An example of an adjustment is a salary or bill paid later in the accounting period. Because it was recorded as accounts payable when the cost originally occurred, it requires an adjustment to remove the charge.
  • The next step is to generate financial statement from the trial balance. These include a balance sheet, an income statement, and a cash flow statement.
  • After you complete your financial statements, you can close the books. This means your books are up to date for the accounting period, and it signifies the start of the next accounting cycle. Then, you begin the accounting process all over at step one.

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