The Bookkeeping Process
Filed Under Bookkeeping 101
Just about every business has a continual flow in and out of money every day. Companies both large and small make purchases, pay expenses, owe debts and own assets, and collect money from clients.
Each transaction has to be tracked so that the company can determine what its financial standing is. The responsibility of this type of documentation falls to the bookkeeper.
Usually, most businesses follow standard bookkeeping processes. During the course of business transaction, a document is produced. Some types of documents include invoices, receipts, deposit slips, or checks.
First, the bookkeeper records the details of the transaction into multicolumn journals called “daybooks.” Each journal or daybook entry details a specific transaction, and there are also separate journals or daybooks for specific types of transactions.
For example, cash payments are recorded in the journal specified for cash payments, sales are recorded in the journal specified for sales, and so on.
After a period of time, usually a month, transactions are added up in each journal and a final total is reached. Each final total or sum is posted to the respective counts in the ledger or book of accounts. When posting is finished, the accounts then are balanced.
After the account has been balanced, a working document called an “unadjusted trial balance” is drawn up, which allows the bookkeeper to check and see that the posting process was done correctly.
This process means that both debits and credits are posted in their requisite columns of the trial balance. When everything is complete, the two columns (debit and credit) are totaled.
The two totals must match exactly. If they do, the process has been done correctly. If not, there’s been an error someplace and it must be located and fixed. After this, the debit and credit totals must be redone before you proceed further.
Once there are no errors, the next bookkeeping process produces what is called the “adjusted trial balance.” This includes the adjustments and changes of the balance amounts. This altered accounts list and their corresponding debit and credit balances make up the financial statements for the company.
Finally, the financial statement must be prepared. This can include the profit and loss statements, the balance sheet, the cash flow statement and the statement of retained earnings, as well as the income statement.
Tags: bookkeeping, income statement, accounting, cash flow
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