What Makes a Transaction Analysis in Accounting Important?
Several inherent traits require accounting to demonstrate a company follows specific rules when recording and reporting information. In many cases, accountants must review transactions and prove their accuracy and validity. This process commonly falls under transaction analysis, a large part of an accountant's process. Most companies will have some transaction analysis involved in its operation.
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Accuracy
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All transactions in a company must be accurate. The parties involved in the transaction and date are among the most important items in the transaction. The numbers relating to the transaction and any math involved in the figures are also important. Inaccurate numbers can lead to financial misstatements, which present false or misleading information to stakeholders.
Validity
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Transactions must be valid for accountants to record them in the general ledger. A valid transaction means the company engages in an arms-length transaction under normal market conditions. All items involved are real or benefits exist from possible intangible items in the transaction. Accountants must review the transaction in order to determine the validity of the items and their applicability to the accounting books.
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Timeliness
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Timeliness indicates in which period a company should record transactions. Accrual-based accounting requires accountants to record transactions as they occur. However, the company may not be able to fully recognize the transaction in accounting terms. Accountants must determine if the transaction needs deferral to a later period, meaning the company will recognize the transaction at a later time.
Posting
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Individual transaction analysis also requires review prior to posting the items into the accounting books. Accountants need to determine the general ledger accounts and debits or credits that apply to each transaction. Without conducting a thorough transaction analysis, accountants may incorrectly classify items in the general ledger. This often requires reviews and corrections to update the books correctly before financial statement preparation.
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