The basis for the existence of accounting is the presence of financial operations in the establishment, so the establishment’s purchase of goods or selling them, the process of paying salaries and others are all called financial operations that the establishment carries out when carrying out its activity.
Types of financial transactions
The financial operations carried out by the establishment, which are recorded in the books, are divided into the following sections:
The financial operations carried out by the establishment, which are recorded in the books, are divided into the following sections:
Revenue operations:
It includes the operations that occur as a result of the establishment's conducting its basic activity, whose objective of practicing this activity is to make a profit, such as the purchase and sale of goods, expenses paid for salaries, wages, electricity, and others.
capital operations:
It includes the operations that occur as a result of the establishment’s purchase of fixed assets, the purpose of which is to assist the establishment in carrying out its activity, and the aim of their acquisition is not to resell them and make a profit from them, such as the purchase of lands, buildings, production lines, the purchase of office furniture, computers, etc., as well as the operations that occur As a result of dispensing and disposing of these assets after the end of their useful life.
Financing operations:
It includes the operations that occur to finance the establishment with cash amounts and in-kind assets so that the establishment can carry out its activity, and this financing is either obtained from internal sources from the owners of the establishment, which is represented by capital, or obtained from external sources from others in the form of loans.
stages of the accounting cycle
The financial process, once it occurs, passes through a set of stages and steps to be processed during a specific period of time and access later to the appropriate financial information for decision-makers. These stages and steps are called the accounting cycle, and they are as follows:
It includes the operations that occur as a result of the establishment's conducting its basic activity, whose objective of practicing this activity is to make a profit, such as the purchase and sale of goods, expenses paid for salaries, wages, electricity, and others.
capital operations:
It includes the operations that occur as a result of the establishment’s purchase of fixed assets, the purpose of which is to assist the establishment in carrying out its activity, and the aim of their acquisition is not to resell them and make a profit from them, such as the purchase of lands, buildings, production lines, the purchase of office furniture, computers, etc., as well as the operations that occur As a result of dispensing and disposing of these assets after the end of their useful life.
Financing operations:
It includes the operations that occur to finance the establishment with cash amounts and in-kind assets so that the establishment can carry out its activity, and this financing is either obtained from internal sources from the owners of the establishment, which is represented by capital, or obtained from external sources from others in the form of loans.
stages of the accounting cycle
The financial process, once it occurs, passes through a set of stages and steps to be processed during a specific period of time and access later to the appropriate financial information for decision-makers. These stages and steps are called the accounting cycle, and they are as follows:
1 Prepare the document and analyze the financial transaction
When the financial transaction occurs, a document is prepared that proves the validity of the financial transaction, so that the accountant then analyzes the financial transaction and determines the debtor and the creditor party.
2 Recording entries in the journal
After the accountant analyzes the financial transaction and determines the debtor and the creditor party, he then records the financial transaction in the daily book in the form of serial accounting entries arranged by date.
3 Transfer entries from the journal to the ledger and balance the accounts
After recording the transaction in the journal, the debit and credit amounts are then transferred from the journal to the accounts affected by the financial transaction in the ledger, in order to know the balance of each account at the end of the period.
4 Preparing the trial balance (before inventory adjustments)
After posting the financial operations to the ledger and balancing the accounts, these accounts are then collected by preparing a statement called the trial balance, as this balance contains all the balances of the debit and credit accounts that were transferred from the ledger.
5 Recording, posting, and balance settlement entries
After preparing the trial balance, the accountant reviews the accounts and takes inventory of them. As a result of the inventory process, it may appear that some accounts need to be adjusted in their balances by preparing inventory settlement entries for these accounts, recording them in the journal, posting them, and rebalancing them again.
6 Preparing the revised trial balance (after inventory adjustments)
After preparing the inventory settlement entries and adjusting the balances of some accounts, a modified trial balance is then prepared.
7 Preparing the financial statements
After completing the preparation of the revised trial balance, which contains all the accounts and their balances, the account balances are then used to prepare the company's financial statements in order to know the result of the company's work in terms of profit or loss and to know the financial position of the company at the end of the financial period, and the financial statements that are prepared at the end of the period It is the income statement, the statement of changes in equity, the statement of financial position, and the statement of cash flows.
8 Closing the accounts for the ended fiscal year
After preparing the income statement, the revenue and expense accounts are closed in the profit and loss account (income summary), as well as the personal withdrawals account in the capital account or in one of the property rights accounts, as will be explained.
When the financial transaction occurs, a document is prepared that proves the validity of the financial transaction, so that the accountant then analyzes the financial transaction and determines the debtor and the creditor party.
2 Recording entries in the journal
After the accountant analyzes the financial transaction and determines the debtor and the creditor party, he then records the financial transaction in the daily book in the form of serial accounting entries arranged by date.
3 Transfer entries from the journal to the ledger and balance the accounts
After recording the transaction in the journal, the debit and credit amounts are then transferred from the journal to the accounts affected by the financial transaction in the ledger, in order to know the balance of each account at the end of the period.
4 Preparing the trial balance (before inventory adjustments)
After posting the financial operations to the ledger and balancing the accounts, these accounts are then collected by preparing a statement called the trial balance, as this balance contains all the balances of the debit and credit accounts that were transferred from the ledger.
5 Recording, posting, and balance settlement entries
After preparing the trial balance, the accountant reviews the accounts and takes inventory of them. As a result of the inventory process, it may appear that some accounts need to be adjusted in their balances by preparing inventory settlement entries for these accounts, recording them in the journal, posting them, and rebalancing them again.
6 Preparing the revised trial balance (after inventory adjustments)
After preparing the inventory settlement entries and adjusting the balances of some accounts, a modified trial balance is then prepared.
7 Preparing the financial statements
After completing the preparation of the revised trial balance, which contains all the accounts and their balances, the account balances are then used to prepare the company's financial statements in order to know the result of the company's work in terms of profit or loss and to know the financial position of the company at the end of the financial period, and the financial statements that are prepared at the end of the period It is the income statement, the statement of changes in equity, the statement of financial position, and the statement of cash flows.
8 Closing the accounts for the ended fiscal year
After preparing the income statement, the revenue and expense accounts are closed in the profit and loss account (income summary), as well as the personal withdrawals account in the capital account or in one of the property rights accounts, as will be explained.
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