Bookkeeping and Accounting Process

The Bookkeeping and Accounting Process
The bookkeeping process refers primarily to recording the financial effects of financial transactions only into accounts. The difference between manual and any electronic accounting system is the time delay between the recording of the financial transaction and posting it in the concerned account. This delay is absent in electronic accounting systems due to instantaneous posting into relevant
accounts, is not replicated in manual systems.

Generally in a business, a document has to be produced each time a transaction occurs. Similarly in case sales and purchases they have invoices or receipts. In the same way deposit slips are produced whenever deposits are made in a bank account. The bookkeeping involves recording the details of all such source documents into multi-column journals. As for illustration, all credit sales are recorded in the sales journal; all cash payments are recorded in the cash payments journal.

By using the rules of double entry system, the journal entries posted into the journal there after they are transferred to their respective accounts in the ledger, or book of accounts and this process of transferring summaries or individual transactions to the ledger is called posting. Once we are finished with the posting process we go for balancing, which is simply a process to arrive at the balance of the account.

In order to ensure that posting process was performed correctly, a working document called an unadjusted trial balance is created. In the simplest form, this is a three-column list. The first column contains the names of those accounts in the ledger, which have non-zero balance. If an account has a debit balance, the balance amount is copied into column two (the debit column). If an account has a credit balance, then the amount is written on credit side. Thereafter the totaling is done of both the sides as for example i.e. both debit and credit side is totaled. The two totals must agree and if the two totals do not agree it means an error has been made either in the journal or during the posting process. Therefore the error must be located and rectified and the totals of debit column and credit column re-calculated to check for agreement before any further processing can take place.

Once there are no errors, the accountant produces a number of adjustments and changes the balance amount of some of the accounts. As for example the inventory account and office supplies asset accounts are changed to bring them in line with the actual numbers counted during a stock take. At the same time, the expense accounts associated with usage of inventory and with the usage of office supplies, are adjusted. It is the accounts in this list and their corresponding debit or credit balances that are used to prepare the financial statements.

Finally, financial statements are drawn from the trial balance, which may include:

• The income statement, also known as a statement of financial results, profit and loss statement, or simply P&L
• The balance sheet
• The cash flow statement
• The statement of retained earnings

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