Stages of Accounting: As per this definition, accounting is simply an art of record keeping. The process of accounting starts by first identifying the events and transactions which are of financial character and then be recorded in the books of account. This recording is done in Journal or subsidiary books, also known as primary books.

Every good record keeping system includes suitable classification of transactions and events as well as their summarisation for ready reference. After the transactions and events are recorded, they are transferred to secondary books i.e. Ledger. In ledger, transactions and events are classified in terms of income, expense, assets and liabilities according to their characteristics and summarised in profit and loss account and balance sheet.

Essentially the transactions and events are to be measured in terms of money. Measurement in terms of money means measuring at the ruling currency of a country, for example, rupee in India, dollar in U.S.A. and like. The transactions and events must have at least in part, financial characteristics. The inauguration of a new branch of a bank is an event without having financial character, while the business disposed of by the branch is an event having financial character. Accounting also interprets the recorded, classified and summarised transactions and events.

Stages of Accounting

Stages of accounting process include journalising transactions, ledger posting, balancing ledger; preparing trial balance, profit and loss account and balance sheet.

Journal is a book of accounts in which all day-to-day transactions are recorded in the order of their occurrence. In big business house, a journal is classified into various special journals which record transactions of similar and repetitive nature. All those transactions which arise occasionally or do not find a place in any of the special journals are recorded in the Journal proper.

Accounting has the following stages:

(i) The transactions of a business that have, at least in part, a financial character are identified and recorded.


(ii) The recording is done in a manner which identifies the different classes and types of transactions.

(iii) The resulting records are summarized in such a way that the owners or other interested parties in the business can see the overall effects of all the transactions. The statements prepared by the summarizing process are known as financial statements which will show the profit or loss made by the business over a period of time and the total capital employed in the business. Such financial statements are used by management to make business decisions.

Accounting Cycle Steps

  • Identifying and Analyzing Business Transactions.
  • Recording in the Journals.
  • Posting to the Ledger.
  • Unadjusted Trial Balance.
  • Adjusting Entries.
  • Adjusted Trial Balance.
  • Financial Statements.
  • Closing Entries.
  • Post-Closing Trial Balance
  • Reversing Entries

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