In particular, when you have sales that are drawn up under the accrual method, there is an increase in net income. The sales in the indirect method cash flow statement are recorded as the first item. Sales that is in cash from customer purchases in case of the direct cash flow method, while in the case of an accrual accounting basis, sales are entered as accounts receivables.
Transaction
A merchandise sale begins with the process of an economic transaction and it’s evidenced by a sales receipt
Analyze and classify
The process of analyzing involves principles of accounting including; the equity concept, monetary concept, and cost principle whereas the classification process involves the preparation of the transactions for entry into the accounting database, specifically using a chart of accounts.
Journalize
After classification, the transactions are recorded as they as were analyzed and classified in the journal entries in the general journal as simple entries or compound entries.
Post
This is a process referring to the transferring the information from the journal entries to the appropriate accounts in the general ledger.
Trial balance
This is a list of all the ledger accounts checking on the accuracy of the posting which occurred during the debit and credit postings.
Adjusting entries
These adjusting entries are aimed at balancing the present and future entries and they include; accruals, amortization of prepayments and intangibles, and deferred revenues and expenses.
Financial statements
These are statements prepared at the end of the trading period. This covers a period of time and bridges the balance sheet of the previous period and of the current accounting period. They include; the income statement, statement of changes in owners` equity, balance sheet, and the statement of cash flow.
Closing entries
In this process, the closed accounts are the temporary or nominal accounts. The process involves the transfer of the revenue and the expense account balances to a suspense account called the income summary.
Posting closing trial balance
It is prepared after the closure of the temporary accounts the only accounts remaining open are the real accounts which include; capital account, assets account, and the liability accounts.
Accrual accounting ensures expenses are matched with the revenue earned within the financial period.
References
Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2002). Accounting principles. New York: John Wiley & Sons.
Harrison, W. T., Horngren, C. T., & Thomas, C. W. (2010). Financial accounting. Upper Saddle River, N.J: Pearson Education/Pearson Prentice Hall.
