Accounting Process & Stages of Accounting Process

Accounting process refers to the process of identifying, measuring, classifying ,recording, summarising, analysing , interpreting and reporting the financial performance and financial position of the enterprise through financial statements.

Stages of accounting process include journalizing transactions, ledger posting, balancing ledger; preparing trial balance, profit and loss account and balance sheet.

A Journal is a book of accounts in which all day-to-day transactions are recorded in the order of their occurrence. In big business house, a journal is classified into various special journals which record transactions of similar and repetitive nature. All those transactions which arise occasionally or do not find a place in any of the special journals are recorded in the Journal proper.

The trial balance may be defined as a statement containing balances of all ledger accounts on a particular date. The trial balance helps to determine the arithmetical accuracy of posting in the ledger

Final Accounts (financial statements) are the statements that are prepared at the end of the accounting period, which is generally one year. These include the income statement i.e. trading account, profit & loss Account and balance sheet

  • Trading account is prepared to ascertain the results, gross profit or gross loss, of trading activities of the business
  • Profit and loss account is prepared to find out the net profit/net loss.
  • Balance sheet is prepared to ascertain the financial position of a firm on a particular date.

Accounts are classified into: personal, real and nominal Account

  • Personal accounts can be natural, artificial and representative
  • Real accounts can be tangible and intangible
  • Nominal accounts include all expenses and losses, income and gains

Golden rules of accounting:

  • Personal: debit is receiver and credit the giver
  • Real : Debit what comes in and credit what goes out
  • Nominal: debit all expenses and losses and credit all income and gains