When we start business, process of accounting will also start. Its beginning point starts from identification of your business transactions and separate these transactions from personal transactions. Record these transactions. End of the process of accounting will be by making of trial balance and financial statements.
Now, one by one we are explaining steps of process of accounting.
1. Identification of Business Transactions
To identify the business transactions is the first step of process of accounting. In business, there are lots of transactions. Some, we can express in monetary or financial form but other we can not express in monetary form. We make list only the transactions which we can show in monetary form. We also check its evidence. We can not record the transactions without evidence. So, all these evidences will be basis of transactions which should record in the books. There are lots of monetary personal transactions which are not related business transactions. We need not record such transactions.
2. Making of Vouchers
Now, on the basis of source documents, we will make the vouchers. Each transactions will have one voucher and all the bills or cash memo will attach with this. For example, cash transaction, there will be cash voucher. Sale transaction, there will be sale voucher (credit)
3. Recording in Day Book
Now, we will take third step. On the basis of vouchers, we will record transactions inday book. Day book is the original book of entry. We will pass the journal entries. If we will not take the second step, we will pass the journal entries on the basis of bills or cash memo directly. In day book, we will pass the journal entries on the basis of double entry system. If there is big business, we will divide whole day book in sub-journals. We will also say these books as subsidiary books. For purchase transactions, we will record in purchase book. For sales transactions, we will record in sales book. All transactions will record in journal special.
4. Posting in Ledger
Now, we post all the journal entries in the different accounts of ledger. Ledger is the book which contains all the accounts systematic and classified form. All transactions relating to one account, we will record in one account. For example, whether cash account is debited or credited in the journal entries, it will be recorded in cash account. Sales account will record sales related journal entries. All will done on the basis of posting. In journal entry, we know, one account will debit and other account will credit. So, two account will prepare. One account which debited in journal will be posted credit side of other account. Other account which is credited in journal entries, will be posted debit side of one account.
5. Preparation of Trial Balance and Preparation of Financial Statements
After positing all journal entries to ledger accounts, we calculate the balance of each accounts in ledger. Same balance will transfer to trial balance. Trail balance is the list of debit and credit balance of ledger accounts. If it will match, it means ledger accounts are free from methamatical errors. Now, on the basis of trial balance, we make trading account, profit and loss account and balance sheet.
Now, one by one we are explaining steps of process of accounting.
1. Identification of Business Transactions
To identify the business transactions is the first step of process of accounting. In business, there are lots of transactions. Some, we can express in monetary or financial form but other we can not express in monetary form. We make list only the transactions which we can show in monetary form. We also check its evidence. We can not record the transactions without evidence. So, all these evidences will be basis of transactions which should record in the books. There are lots of monetary personal transactions which are not related business transactions. We need not record such transactions.
2. Making of Vouchers
Now, on the basis of source documents, we will make the vouchers. Each transactions will have one voucher and all the bills or cash memo will attach with this. For example, cash transaction, there will be cash voucher. Sale transaction, there will be sale voucher (credit)
3. Recording in Day Book
Now, we will take third step. On the basis of vouchers, we will record transactions inday book. Day book is the original book of entry. We will pass the journal entries. If we will not take the second step, we will pass the journal entries on the basis of bills or cash memo directly. In day book, we will pass the journal entries on the basis of double entry system. If there is big business, we will divide whole day book in sub-journals. We will also say these books as subsidiary books. For purchase transactions, we will record in purchase book. For sales transactions, we will record in sales book. All transactions will record in journal special.
4. Posting in Ledger
Now, we post all the journal entries in the different accounts of ledger. Ledger is the book which contains all the accounts systematic and classified form. All transactions relating to one account, we will record in one account. For example, whether cash account is debited or credited in the journal entries, it will be recorded in cash account. Sales account will record sales related journal entries. All will done on the basis of posting. In journal entry, we know, one account will debit and other account will credit. So, two account will prepare. One account which debited in journal will be posted credit side of other account. Other account which is credited in journal entries, will be posted debit side of one account.
5. Preparation of Trial Balance and Preparation of Financial Statements
After positing all journal entries to ledger accounts, we calculate the balance of each accounts in ledger. Same balance will transfer to trial balance. Trail balance is the list of debit and credit balance of ledger accounts. If it will match, it means ledger accounts are free from methamatical errors. Now, on the basis of trial balance, we make trading account, profit and loss account and balance sheet.
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