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Key Components of Accounting Processes

by GBAF mag

The main role of financial accounting is to collect information about the financial activity of an organization and make reports to an authorized official of the organization on the financial activity of the organization. Cash recording includes only cash transactions performed by an employer of an entity. It does not include business costs or any expenses of a non-employee. The performance of accounting has three important stages: analysis, measurement, and reporting. These three stages are very important for the proper functioning of the accounting system.

Analysis stage is the first step of any accounting procedure. It starts with an identification of the business purpose of the organization. This stage involves identifying how the financial activities of the organization will help to achieve the business objectives. In addition, it is also required to study the financial transactions performed by the business to know its assets, liabilities, revenues, and spending. The scope of accounting activities may extend to the financial performance of other individuals and to the performance of the business as a whole.

Second stage of financial accounting involves the collection and preparation of financial records. It includes data capture, data processing, document data conversion, data entry, and audit of financial records. Auditing involves review of the completeness and accuracy of the reported financial records. A manager performs an inspection of the entire process. These principles are applied throughout this process.

The third stage includes the preparation of financial reports. It includes a statement of income and other financial information; balance sheet; and inventory, capital goods, and financial information about the direct and indirect owners of the business. A manager prepares a statement of cash flow, profit and loss, and cash and securities transactions. All these transactions are reported in the financial reports. Reports are prepared based on the guidelines provided by accounting principles.

Fourth stage includes preparation of financial statements. It consists of the income statement, balance sheet, and statement of cash flows. These statements provide information about the operations and financial condition of the company. The income statement reports the income from financial transactions, and the balance sheet reports the difference between assets and liabilities. All these reports are necessary for financial analysis. The balance sheet is the most important one because it provides an accurate picture of the financial condition of the organization.

Fifth stage includes the preparation of the financial statement and the presentation of the financial statements to decision makers. There are several ways to prepare financial statements. For instance, accounting software can produce financial statements automatically. Some other methods include the use of accounting journal, printed publications, computerized financial statements, web-based services, and visual data presentations.

Accounting standards require that the financial statements be prepared in accordance with the generally accepted accounting practices. Auditors are responsible for checking the accuracy of these financial statements. The auditor checks on the application of principles in accounting, and he checks whether the organization followed the procedures laid down by the applicable laws. Errors in the accounting statements have to be corrected as soon as possible to prevent the delay of reporting results to the decision makers. If the errors are not corrected, the auditor may send a report to the people outside the company. The people outside the company can make complaints if they think there is discrepancy in the results of accounting conducted by the company.

Financial accounting involves a number of tasks such as compiling the information, analyzing it, and communicating it to decision makers. This is what is done every day by a large number of business organizations. Therefore, it is very important to ensure that all the requirements are properly performed in order to get the best results. Small business accounting can help a lot in providing accounting information that can prove useful for business managers as well as other employees involved in the organization.

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