When most people think of accounting, they immediately think of bookkeeping, the process of recording economic events. The fact of the matter is that bookkeeping is only a third of accounting. That is to say, it is one of the three primary objectives of accounting. The other two objectives are identifying and communicating economic events. Together, the three objectives allow accountants to make informed judgments and decisions (Godwin & Alderman, 2010).
The first in the process is identification. This is where the accountant observes events in order to identify those that are of financial value. According to David Norman, the observations may include payment of wages and expenses, and collection of monies owed, whether personal, from sale of goods, or from the rendering of services.
The next stage, bookkeeping, is where the accountant classifies and keeps a record of all pertinent financial transactions. These records are kept in monetary value, in chronological order, and in a very organized and systematic manner. They must be properly classified and summarized (Norman, 2010).
During the stage of communication, the accountant must summarize and interpret the data for the users. These are usually in the form of financial statements, or standardized formats. They are then interpreted for and distributed to the person(s) or company that will utilize them (Norman, 2010). This is made easier by following the accounting process.
The accounting process starts with a transaction, terminates with the closing of the books, and includes several steps in between. The first step is the identify the transaction and prepare a source document like a receipt or bill of sales. Next the transaction must be analyzed and categorized in monetary units as credits or debit and which the accounts they effect. This information is recorded in chronological order in a specific or general journal then added to the ledger accounts.... [continues]
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