The Flow of Information in an Accounting System
Accounting systems take the cash and accruals from various transactions and generate financial reports and statements.
The first step is to create journal entries and adjusting entries. The journal is a chronological list of each transaction, the amount, and the accounts affected. Some systems allow entries to include notes or authorizations. Adjustments are typically made at the end of accounting periods to record accruals not yet reflected in the accounting system.
Next, the general ledger and T-accounts can show the transactions sorted by the accounts affected rather than in chronological order. This can be useful for reviewing the activity in an account such as inventory.
Third, a trial balance lists the balance of each account on a given date. Unlike a ledger, only the ending balance is presented. Trial balances represent the first step in producing financial statements.
Finally, financial statements are prepared as a final product of the system, based on the totals from an adjusted trial balance.
For more information, see all articles on: Uncategorized See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
