7 key Steps in the Accounting Process Every Business Need to Know

The process of accounting is crucial for every successful company in the UAE and the business need to have a proper accounting process within the organisation.

The accounting cycle is used to generate financial statements. The financial statements present an accurate picture of the company over a fiscal period. The steps in the accounting cycle help the businesses in presenting a clear view of the financial health of the organisation. Properly following the steps will help the business owners reduce the risks in managing the company.

The Accounting Cycle: The Crucial Steps in the Accounting Process

1. Identifying and Analysing Business Transactions

Analysing the transactions is the first yet crucial step in the whole accounting process. The businesses need to identify the accounts that are affected by the transactions. The process involves analysing source documents like the purchase orders, invoices, loan agreements, receipts etc. that are the evidence for business transactions in the company. Companies need to avoid mixing personal and business transactions. It is crucial to ensure that only business transactions are entered into the accounting system.

2. Posting Transactions in Journals

The next step in the accounting cycle is journalising the transactions. The outsourced accounting firms in the UAE will ensure that all the financial information pertaining to the business has been recorded in the journal. This process is done using the double-entry system of bookkeeping, where the transactions are recorded in debit and credit accounts. The journal carries the date and description of the transactions. The journal can be in book or electronic form depending on the system followed by the outsourced accounting firm.

3. Posting from Journal to Ledger

The financial information recorded in the journal, both debit and credit, now gets transferred into the ledger. The ledger is also called the book of final entry and it shows the company’s accounts and the changes it underwent due to various business transactions. All the debit and credit journal cash transactions will be transferred to the cash ledger.

4. Recording adjusting entries

The accountants in the UAE at this stage will record the adjusting entries to update the accounts before summarising them in the financial statement. The entries will be journalised and posted to the ledger.

5. Preparing the adjusted trial balance

After the new entries are made, the companies need to calculate a new trial balance to test if the debits are equal to the credits. This is the stage laid for preparing for the financial statements of the company and therefore is an important phase in the accounting cycle. Any error detected in the adjusted trial balance requires immediate correction.

6. Preparing financial statements

After the adjusted trial balance, move on to prepare the financial statements. The financial statements of companies are statements such as,

• Income Statement
• Balance Sheet
• Cash flow Statement
• Posting closing entries

As the accounting period ends, the temporary accounts are closed or minimised to zero. These include expenses, income, and withdrawal accounts. It must be noted that the closing entries are made for temporary accounts and not for permanent accounts or the account of balance sheet.

7. Post-Closing Trial Balance

As the temporary accounts have already been closed, the book now consists only of permanent entries like assets, liabilities and owner’s equity. This step ensures the proper closure of revenue and expense accounts. It also aims to make sure that total debit and credit are equal. The companies need to recheck the book again for errors and correct them.

Seek Help From Accounting Firms in Dubai, UAE

To understand and properly execute all the necessary steps in the accounting cycle the companies are advised to enlist the services of the best accounting & bookkeeping firms in the UAE. Jitendra Chartered Accountants (JCA) is a reputed accounting firm in Dubai, UAE that has helped businesses across different sectors maintain their books of accounts in compliance with the local and international regulations. JCA’s qualified and experienced team of Chartered Accountants ensure that the financial statements and reports of companies comply with the International Financial Reporting Standard (IFRS). Being the best accounting firm in the UAE, JCA is committed to address key issues faced by the company including cash flow management, planning & forecasting of budgets and thereby help the business grow.