Intro

Accounting is a profession that requires meticulousness and accuracy in measuring, processing, and communicating financial information. 

Source: Freepik 

It is the process of collecting, processing, examining, analyzing, and providing economic and financial information in value, in-kind, and labor time. This work provides useful data for economic, political, and social decisions. 

There are basic theories that one should know when it comes to accounting. Accounting processes are one of them. Therefore, in this article, we will provide information about the nine steps of the accounting procedure. Scroll down more to find out! 

What Is Accounting Processes? 

Accounting processes are a collection of adjacent steps and jobs of financial accounting taken by accounting departments. The accounting services are applied in a certain order, have relationships between departments and organizations, and are translated according to the level of importance, authority, and responsibility.

They are also known as the entire accounting cycle. More simply, it is a series of steps taken by a business when financial transactions occur. 

All income, identification, classification, aggregation, and recording of business transactions are shown in the books. This is to prepare financial statements to know the financial position of the business processes after a while.

The 9 Steps Of The Accounting Cycle 

Depending on the company, bookkeeping is more or less technically supported. This can lead to interference, changes in some steps in the basic accounting process.

Source: Freepik 

Furthermore, annual companies also adapt their cycle in ways that are appropriate to their procedures as well as their business model. Many companies also use software that automates the cycle.

However, in general, the 9-step accounting cycle begins with recording a company's transactions one by one and results in a comprehensive report.

Starting from steps 1-6, information about business transactions is briefly recorded. They will be aggregated and compared to arrive at the reported values. Such financial information will be shown in step 7 in the financial statements.

After presenting the financial statements, the last two steps, 8-9, are to prepare the account for the next reporting period.

What Are The 9 Steps Of The Accounting Cycle? - Detail Explain

After having an overview, here is a detailed explanation of the nine steps in the cycle:

Identify Transactions 

The first step for the growth companies in major accounting is to identify business transactions and events and then analyze them. However, not all types but only record events related to business units. This means paying attention to the segregation of a transaction, whether it is personal or business, before recording it.

Source: Freepik 

The amount of these transactions will then be recorded by accounting firms after the analysis process. The affected accounts are also identified. This is the step that is supposed to provide proof that a transaction has occurred, or is known as the preparation of the source document.

Record Transactions In A Journal 

Journals are also referred to as Books of Original Entry, used to record transactions. The balance sheets can be in paper or electronic form. The transactions shown therein are usually arranged in chronological order.

Journals will usually always have two columns, a debit account and a credit account. 

Most businesses have two journals, the regular one and the special one. While the regular one is used to record frequently repeated transactions, the special one will record the rest of the transactions.

Posting In The Ledger 

The Ledger or Book of Final Entry is the collection of the accounts and shows the current balance. This is where changes to the accounts of transactions that have been recorded are shown.

In other words, the ledger makes it easier to track changes from the original metric by reconciling all the records made for each account. 

All the journal entries for each account will be shown in the ledger, and we can track the increases and decreases and determine the balance.

Unadjusted Trial Balance

All balances from the ledger are extracted and sorted into a report to check if the debit account balance equals that of the credit account. Add the debit and credit balances, respectively, and make sure the two are equal afterward.

Make corrections if errors are found. But it should always be remembered that the trial balance is not to ensure accurate records but only to check that the debit balance and the credit balance are equal.

However, even if the two accounts are equal, errors can still occur, for example, in the case of a transaction missing.

Adjusting Entries 

Before accounts are summarized in financial statements, adjusting entries are made as a concept of accrual accounting. 

At the end of the period, there may be missing expenses or income that have not been recorded in the journal. Therefore, adjusted entry is made with accruals, accruals, depreciation, allowances, prepayments, and deferrals.

Adjusted Trial Balance 

To check the balance of debit and credit balances after adjusting entries before preparing financial statements. Therefore, after making the adjusting entries, an adjusted trial balance is made.

Financial Statements

It is the end product of the accounting system. These include the statement of changes in equity, the statement of comprehensive income, the statement of financial position, the statement of cash flows, and the notes to the financial statements.

Closing Entries 

Temporary accounts, including income, expenses, and withdrawal accounts, will be closed in preparation for the next period. They are closed to the summary account and then the capital account.

Post-closing Trial Balance

The last step is to prepare the trial balance after closing the book. It will only contain real accounts because temporary accounts have been closed before.

Conclusion 

Overall, these are the nine basic steps of the accounting processes of accounting reports. You will be able to find places where there are only eight steps or even other places where the entry reverses steps.

However, keep in mind that these steps are tailored to each business, hence the difference.