The Institute of Chartered Accounts of Nepal (ICAN) was established under The Nepal Chartered Accountant Act of 1997. It was passed by the Parliament of Nepal to enhance public faith and raise awareness about the importance of the accounting profession in the country's social and economic development.
In general, accreditation is a process of review that evaluates and monitors the quality of an institution's degree-granting programs by reputed colleges or universities. Accreditation can make a difference in the quality of the degree individuals receive at all levels.
What is Accounting Procedure?
Accounting simply means recording financial transactions for a business. This includes summarizing, analyzing and reporting these transactions to oversight agencies, regulators and tax collection entities. In other words, it means how your business records, organizes and understands its financial and non-financial transactions in accordance with generally accepted accounting principles, laws and regulations.
Therefore, it is necessary for a good accountant to understand the procedures of accounting. There is no legal requirement for an accountant to be qualified in any way, but some companies require a degree qualification to be an accountant of the company.
Some generally accepted accounting principles are the organization of objectives, provision of a structure for solving problems, improvement in the understanding of financial statements, confidence in financial reporting, and development of contrast among a company's financial statements.
Different steps are involved in the accounting cycle, and some of the major steps involved in accounting are highlighted below:
- Identifying and Analyzing Transactions
- Recording Transactions in a Journal
- Posting Journal Information to Ledger
- Prepare Unadjusted Trial Balance
- Adjusting Entries
- Prepare Adjusted Trial Balance
- Prepare Financial Statements
- Closing Entries
- Prepare Closing Trial Balance
- Reversing Entries
Step 1: Identifying and Analyzing Transactions
The very first step of accounting is to identify and analyze the transactions. Transactions are of two types, i.e. financial and non-financial. This step takes information from original sources or activities and translates that information into usable financial data.
For example, a sales and purchase invoice is considered an original source.
Step 2: Recording Transactions in a Journal
The financial data analyzed in the first step is taken and organized into a comprehensive record of every transaction. A journal, also known as a book of the original or general journal, is a record of all transactions. The format of the journal is shown below:
Step 3: Posting Journal Information to Ledger
The third step is posting journal information to the ledger. Ledger here means a book or collection of accounts in which financial transactions are recorded. In this stage, an accountant takes all the transactions from the journal and keeps a detailed record of every transaction in the life of a company.
Step 4: Preparing Unadjusted Trial Balance
After posting all journal information to the ledger, an accountant must prepare an unadjusted trial balance. A trial balance is a statement showing debit and credit balance in a double entry bookkeeping, with disagreements indicating errors. It ensures that the total credit and total debit amount are equal.
Step 5: Adjusting Entries
The fifth step of the accounting procedure is to analyze the worksheet and identify adjusting entries if needed. Adjusting entries are made if any discrepancies occur. They fall under accrued revenue, accrued expenses, unearned revenue, prepaid expenses and depreciation.
Step 6: Prepare Adjusted Trial Balance
Once the entries are adjusted, the next step is to prepare an adjusted trial balance. It is prepared to ensure that the financial statements for the period are accurate and up-to-date. Adjusted trial balance is prepared by creating a series of journal entries designed to account for any transactions that have not yet been completed.
Step 7: Prepare Financial Statement
Financial statements include a company's income statement, balance sheet, and cash flow statement. It is prepared to know the company's financial position, profit or loss, and cash inflow and outflow.
Step 8: Closing Entries
It is a kind of journal entry prepared at the end of an accounting period to transfer temporary accounts to permanent accounts. It resets the temporary accounts' balance to zero and is ready to begin the next accounting period.
Step 9: Prepare Closing Trial Balance
Preparing a closing trial balance is the most important step in the accounting procedure. Closing trial balance is used to verify that the total of all debit balances equals the total of all credit balances, which should net to zero.
Adjusted Trial Balance
Step 10: Reversing Entries
The final step of an accounting procedure is reversing entries. Reversing entries is a journal entry in an accounting period that reverses selected entries made in the immediately preceding period. It typically occurs at the beginning of an accounting period.
For example, if ABC Company wanted to make an adjustment in the Salary Unpaid of staff for Rs. 40,000, it would debit the amount from the salary expenses account and credit it to the salary payable account.
Why is Accounting Important for Business?
- Keeps the systematic recording of all the financial as well as non-financial transactions of a business.
- Prepares financial statements for every fiscal year.
- Aids in Decision Making
- Satisfies all legal requirements that need to be followed by a business.
- Provides necessary information to interested groups.
- Works as a piece of legal evidence if something goes wrong.
- Computes taxes that need to be paid by a business company.
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