How Do Accountants Carry Out the Accounting Process?

How Do Accountants Carry Out the Accounting Process?

Have you ever wondered how the accountants carry out the accounting processes? As a business owner, you may have realised how vital accounting is towards your business. Besides letting you see your company’s performance in the past and your current financial position, the accounting will help you in planning for the future, understand the trends in your expenses and revenues and make adjustments if necessary. However, the accounting process is too time-consuming that you are unable to handle it all on your own. If so, you should get assistance from an accounting firm in Singapore so that you can spend your precious time on core business activities while having a tight grip on the finances of your company.

The accounting process involves recording three types of transactions in your accounting records that document all your business transactions. Then, the aggregation of this information will help in generating your financial statements. The three types of transactions include:

– Transactions which ensure that the accountant has reversed the reversing entries created in the last accounting period

– Accounting entries that record all the business transactions that occur within the period into the accounting records

– Transactions that the accountant needs in the process of closing the books and generating financial statements at the end of the accounting period

In the article below, we will discuss the types of transactions mentioned above, which are recorded at the beginning of an accounting period, during the accounting period, and at the end of that period respectively.

Accounting Processes at the Beginning of an Accounting Period

The accountants need to confirm that all the transactions that act as reversing entries in the last accounting period have been reversed. This is to ensure that they will not record those transactions twice in the current accounting period. Typically, in the accounting software, there will be a flag which indicates that these transactions are reversing entries; thus, the reversal should happen automatically.

However, the accountants still need to check the accounts when a new accounting period begins to confirm those reversals. If there are no reversing flags to mark those adjusting entries, they should reverse them manually by using new journal entries.

Transactions During an Accounting Period

The steps that the accountants need to take in the accounting process includes:

  1. Determining the transactions

The first thing the accountants need to do is to identify the type of transaction. For instance, the transaction can be paying salaries to the employees, purchasing raw materials from the suppliers, selling goods or services to the clients, or recording the cash payment the company has received from its customer.

  1. Preparing related documents

The company needs to prepare or recognise business documents to initiate transactions. For example, it has to issue an invoice to its customer for it to receive payments.

  1. Determining the accounts involved

The accountants will record all the business transactions in the related accounts in the accounting system. It can be an asset, liability, equity, revenue or expense account. They need to identify what account they should use to record a transaction.

  1. Recording transactions

Then, the accountants will key in the transactions to the accounting system. They can do this by using online standard transaction forms or journal entries. The accountant may use the former to record transactions when they receive cash for accounts receivable, and it will record that information in sets of accounts which are fixed. However, they can also override the accounts when necessary.

Accounting Processes at the End of an Accounting Period

In this stage, the accountant needs to aggregate all information they have recorded in the previous steps before presenting them in the company’s financial statements. This process includes:

  1. Preparation of trial balance (Also see What are the Differences Between a Trial Balance and a General Ledger?)

A trial balance is a document that lists all the ending balances of all the accounts. In the trial balance, the sum of debits and credits must be the same. Otherwise, it means that the accountant has made some mistakes when creating the entries for the original transactions. If this happens, he needs to look for the mistake and correct it (Also see Understanding Correcting Entries).

  1. Make adjustments in the trial balance

The accountant may need to carry out this step to make adjustments in the trial balance. They may need to correct the mistakes, accrue revenue or expenses (Also see Accounting for Expenses), or create various allowances for that accounting period.

  1. Preparation of adjusted trial balance

In this step, the accountant needs to add or subtract the adjustment he has made to the original trial balance.

  1. Preparation of financial statements

The accountant should generate the company’s financial statements by using the adjusted trial balance. To form the balance sheet, he should use the line items for assets, liabilities, as well as shareholders’ equity. To generate the income statement, he should use the line items for revenue and expenses.

  1. Closing the accounting period

The accountant should transfer the balances of revenue and expense accounts to the retained earnings account. After doing so, the revenue and expense accounts should be empty and are able to receive transactions in the upcoming accounting period.

  1. Preparation of post-closing trial balance

In this trial balance, the account balances for all revenue and expense account should be zero.

In the real situation, the accounting software will help to create all kinds of financial statements (Also see Which is the Most Important Financial Statement?) and trial balance automatically. Thus, there are fewer steps in the accounting process that the accountant should actually carry out. If the company is using a computerised system, the steps probably include:

  1. Preparation of financial statements

The accounting software will compile the information from the general ledger automatically.

  1. Closing the accounting period

The accountant will close the accounting period that has ended before opening the new one. This prevents them from entering the transactions for the current period into the previous accounting period accidentally.

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