Accounting in a very simple sense is maintaining a record of varied activities. Thus, Accounting is some things that are used almost by everyone in their daily lives. In our lifestyle, we maintain a record of varied transactions or activities. Let’s talk about Accounting Process.
Accounting Process
Identifying financial transactions: First of all, transactions that are of financial nature i.e. transactions that can be measured in terms of money, are to be identified.
Recording financial transactions: In the next step, financial nature transactions are recorded in the books of accounts. Thus, transactions of financial nature are recorded in Journal.
Classifying financial transactions: Accounting transactions once recorded are classified by collecting similar transactions and posting them to Ledger i.e. book or account which records transactions of similar nature. For example, all the transactions associated with Sales are recorded under one account i.e. Sales Account.
Summarising: Accounting transactions are recorded, classified, and summarised in a way that can be useful for the users of accounting information. Thus, to make information useful, Trial Balance, Trading Account, Profit and Loss Account or Statement of Profit or Loss (in case of Companies) and Balance Sheet are prepared. All these statements help the users for an easy understanding of the financial data of a business.
Analysis and Interpretation of Results: Results from Financial Statements are analyzed and interpreted in a meaningful manner. Such that, those are often employed by the users of monetary information so as to assess the financial performance of the business.
Communication: Finally, the results of financial statements are communicated to the various interested parties who can use the information as per their distinctive needs.
Accounting Process or Phases of Accounting can also be termed as Functions of Accounting or Accounting Cycle.
Also, Read What is Accounting?