What is the process of accounting

Every event usually follows a process. For example, to cook a particular kind of food requires a series of processes or steps. This is also true with accounting. The process of accounting is the steps taken from the collection of financial data to the preparation of financial reports. It usually starts from collecting data in the form of source documents from third parties to the organization and recording such data in the journal book. We will explain more in detail. 

Steps in the process of accounting

The steps involved in the accounting process are collecting, recording, classifying, summarizing, organizing, and presenting. You will notice that most of these steps are part of the definition of accounting. 

Collecting

This can be done by any employee in the organization. When a sale is made, the sales representative will issue an invoice to the customer and keep a copy for the organization. By doing this, data is collected from third parties. The popular source documents used here are invoices and receipts. 

Recording

The collected data are recorded. The prime books or subsidiary books are used to record transactions that were collected. When a sale is made, it is recorded in the sales day book (a subsidiary book).

Classifying

In this process of accounting, the recorded transactions are classified into the various ledger accounts of the entity. So, items on sale go to the sales ledger, cash items go to the cash book or treasury ledger, and so on.

Summarizing

This applies to both recording in books of prime entry and classifying in the ledger accounts. It means to give an explanation in a summarized way about the financial data collected. This is usually in the narration or description of the books of accounts.

Organizing

It is done through the trial balance. Of course, after classifying transactions in the ledger book. It is appropriate to organize them in totals into the trial balance. This will aid the preparation of financial reports.

Preparing and presenting

The final step in the process of accounting is preparing and presenting. From the items in the trial balance, the financial officer or accountant will prepare the financial reports. These reports consist of the statement of profit or loss, statement of financial position, and statement of cash flow among other things.

From the foregoing, you can see that the first step in the accounting process is collecting financial transactions. While this can be done by any employee, the recording, classifying, and summarizing of transactions is done by the bookkeeper. While the accountant prepares the financial reports for the organization.