Essay Sample on Accounting: An Essential Process for Businesses

Introduction

Accounting is described as the process of analyzing and recording financial transactions relating to a specific business. The accounting process is therefore referred to as the process of the complete sequence of the accounting actions used to summarize, classify, and record the accounting information during each of the accounting periods. It is an action that must be conducted continuously to allow enterprises to prepare for new up-to-date financial statements at a rational interval. Hence the paper will list and describe four significant steps of the accounting process.

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Analyze Transactions

The first step in the accounting process is identifying and analyzing transactions. In any financial accounting, one begins by explaining each of the operations (which is an event that has money or monetary impact on an enterprise) after identifying. The step is used to ascertain any changes created in the accounts like dividends paid or rent expense, indicating that an economic event within an organization has happened. It is where the company will take information or data from the activities or sources a then translate this information into reliable and usable financial data (Skender & Hoyle, 2012). For instant, the sales invoice is considered to be a source. Some of the activities might be selling products or borrowing money.

Hence once the form has identified the source in this step, it will analyze the information it as obtained to see how the data has influenced the financial record of the company (Arnold & Kyle, 2017). For example, a company that provides cleaning services to its customers generates an invoice of $200, which is the amount the customer owes to pay for the service, the sales receipt will contain information like payment terms or customer name. The sales receipt is considered as the source that includes financial information that needs to be analyzed by the company and see how it affects the firm's financial records. The step of explaining is very vital for any enterprise since t allows the firm to measure its profitability and efficiency and also to provide a way in which the business can determine the relationship that exists between one counting variable to another one on the financial statements.

Record Transactions

The second step in the accounting cycle is recording transactions to journals. It is the process that involves analysis from the initial stage, journal entries preparation, and finally, posting of these relate entries to a general journal. In this step, one first analyzes the transactions by determining the accounting entries and then recording than in the suitable accounts (Basu, 2017). An enterprise needs to record sales in the period it occurs whether or not the cash changes hands. Secondly, by preparing journal entries that are described as the chronological record of the transactions. It is made up of transaction date, credit, and the debit amount and a brief memo that explains the transaction. It is a recording process that discloses all the effects of the trade-in one given place. Also, journal entries assist in correcting and detecting errors in the accounting transaction because at the end of the period, the credit and the debit quantities must balance.

The last stage in the recording procedure is posting the entries to the ledger. It merely means posting the entries to a general ledger that comprises all the summary records of accounts. Each of the files recorded contains transaction dates, credit, debit, comments, years, and outstanding balance. Also, the general journal can be presented in the arrangement of software application, index card, or binder (Basu, 2017). For example, when the cleaning company needs to record the transaction of $200 in their financial records, they need to select which accounts to represent the transaction, whether the transaction will decrease or increase the accounts. The company also needs to consider how it will impact the accounting equation before they can record the action in the journal. Also, the firm should record each transaction that occurred during that period.

Adjust Transactions

The third step in the accounting process is adjusting transactions. At the end of each financial period, adjusting entries is need to align expenses and revenues to the "right" period, following the matching rules in accounting. It must be posted for the firm to account for deferrals and accruals. The entries make sure that the company's financial statements contain only the information which is relevant to the specific period it is interested in (Smith, 2019). Four essential types of adjustments made include missing transaction adjustments, tax adjustments, accruals, and deferrals. These entries are usually internal and non-cash transactions. Hence its main aim is to update all the accounts to imitate the accrual concept. For example, at the need for an accounting period, some expenses and incomes may not be updated, taken up or recorded. Hence there will need to update the account.

Reporting Transactions

It is the final step in the accounting process. It involves the procedure of producing statements that disclose the firm's financial status to government, investors, and the management (Schroeder et al. 2019). The phase involves the preparation of financial statements that communicate information of commercial to the owner. These general-purpose reports that companies need to prepare to report to the interested parties include accounts of receipt and payments that reports the cash the business has paid and received and also changes in the firm's bank balance over the period. The second report that needs to be prepared is the income statements that indicate the company's expenses and revenue over the period. Likewise, a balance sheet that details the enterprise liabilities and assets at a specific point of time also need to be prepared and presented to the stakeholders (Schroeder et al. 2019).

Conclusion

In summary, each step-in accounting process plays a vital role in developing accurate entries and also managing the firm's finances each time revenue is earned and purchase made by the company. Hence the enterprise needs to follow each step of the accounting cycle in the right order to ensure the success of the business. Also, it is a cycle that will help in the future planning of the company to avoid losses.

References

Arnold, G., & Kyle, S. (2017). Intermediate financial accounting volume 1. Lyryx. Retrieved from: https://lib.hpu.edu.vn/handle/123456789/26482

Basu, C. (2017). The usual sequence of steps in the recording process in accounting. Retrieved from: https://www.wiley.com/college/sc/wkk/wey7_ch02_43-86.pdf

Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial accounting theory and analysis: text and cases. John Wiley & Sons. Retrieved from: https://books.google.co.ke/books?hl=en&lr=&id=oVKsDwAAQBAJ&oi=fnd&pg=PA1&dq=Schroeder,+R.+G.,+Clark,+M.+W.,+%26+Cathey,+J.+M.+(2019).+Financial+accounting+theory+and+analysis:+text+and+cases.+John+Wiley+%26+Sons.&ots=1WXfkv32bH&sig=wfljT15SQwVoL1toZd3dBHJYlxo&redir_esc=y#v=onepage&q&f=false

Skender, C. J., & Hoyle, J. B. (2012). Financial accounting. Retrieved from http://www.saylor.org/site/textbooks/Financial%20Accounting.pd

Smith, R. (2019). A beginners guide to the accounting cycle. Retrieved from: https://bench.co/blog/accounting/accounting-cycle/