What Are the Basic Phases of Accounting?

Save

There are four basic phases of accounting: recording, classifying, summarizing and interpreting financial data. Communication may not be formally considered one of the accounting phases, but it is a crucial step as well. All accounting information should be communicated properly to the appropriate parties after analyzing. Accounting reports must be prepared and distributed, and should include the basic income statement and balance sheet, as well as additional information including accounting ratios, diagrams, graphs and funds flow statements.

Recording

  • Recording is a basic phase of accounting that is also known as bookkeeping. In this phase, all financial transactions are recorded in a systematical and chronological manner in the appropriate books or databases. Accounting recorders are the documents and books involved in preparing financial statements. Accounting recorders include records of assets, liabilities, ledgers, journals and other supporting documents such as invoices and checks.

Classifying

  • The classifying phase of accounting involves sorting and grouping similar items under the designated name, category or account. This phase uses systematic analysis of recorded data in which all transactions are grouped in one place. For example, "travel expenses" might be a category that accountants use to classify expenses relating to company travel. The term "ledger" refers to the book in which classifications are recorded.

Summarizing

  • The summarizing phase of accounting involves summarizing the data after each accounting period, such as a month, quarter or year. The data must be presented in a manner which is easy to understand and use by both external and internal users of the accounting statements. Graphs and other visual elements are often used to complement the text data.

Interpreting

  • The interpreting phase of the accounting process in concerned with analyzing financial data, and is a critical tool for decision-making. This final function interprets the recorded data in a manner which allows end-users to make meaningful judgments regarding the financial conditions of a business or personal account, as well as the profitability of business operations. This data is then used to prepare future plans and frame policies to execute financial plans.

References

Promoted By Zergnet

Comments

You May Also Like

  • What is the Accounting Cycle?

    The accounting cycle is the set of steps used to process accounting information. It begins at the start of an accounting period...

  • Career Levels in Accounting

    Accounting is a rewarding career field with ample opportunity for advancement. If you like numbers and minute details, then accounting could be...

  • What Are the Four Basic Phases of the Innovative Process?

    Any business looking to create and sell new products should be familiar with the innovation process. The invention of an idea or...

  • Four Phases of Accounting Financial Statements

    Financial statements allow investors to quickly examine a business's finances and determine whether the business represents a strong investment. Accountants generate financial...

  • Three Phases of the Financial Accounting Process

    The financial accounting process primarily includes identifying, recording and adjusting business transactions, with the resulting data presented in the financial statements. Thus,...

  • Accrual Accounting for Capital Projects

    The accrual method of accounting recognizes transactions as they happen, regardless of when cash is received or paid. Using this basis, businesses...

  • Basic Elements of Accounting

    The basics of accounting involve three fundamental elements; assets, liabilities and equity. These elements make up the basis for financial reports such...

  • Phases of the Evaluation of Internal Controls

    Internal controls are safeguards a company institutes to protect assets, resources and financial information. Most companies have internal controls at the particular...

  • Types of AIS Conversions

    Accounting Information Systems are a way of using information systems to manage accounting information. These systems combine traditional accounting inputs with information...

Related Searches

Check It Out

Are You Really Getting A Deal From Discount Stores?

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!