The accounting process from start to finish

There are many ways to skin a cat as the saying goes but unlike cats, accounting and accurate record keeping in business, has one way of doing it.  The are many options in that way but the process is always the same.

More importantly, the process is simple. Anyone who tries to tell me otherwise is always wrong. Even the biggest listed companies with thousands of staff still use the same process. It may take a little longer to get to the end result but this is an “all roads lead to Rome” situation.

Where does it start?

The process all starts with source documents. These are the supporting structures to it all. The most common source documents are bank statements.

The middle (or invisible) bit!

The part between the beginning and the end is often overlooked by people because they don’t see it. If you are in a company that has an accountant/bookkeeper or a whole department, then it will be seen but when you outsource the accounting function, you will not see it.

You can compare this to building a house from the ground up.

The start: Approving the plans and giving the contractors the go ahead.

The middle or invisible bit: The next weeks or months are not really exciting because it is all below ground. They are building the foundation. They build this so the house doesn’t fall over. We have all driven past massive building sites where the steel walls go up and then only months or years later do you see anything above ground level.

The end: Once the foundations are done, the building seems to shoot up and get finished relatively quickly.

Back to the accounting process now, the accounting process from bank statements, supplier invoices and customer invoices all come together in the accounting system and leads to what is called the trial balance. Basically this is all the numbers in one report. This part does not matter to most because again it is not seen by most people. Once this is finalised, then the end is near.

Where does it end?

The accounting process ends quickly once the trial balance is converted into a set of annual financial statements. If the company does not have an audit, this can be done in days or maximum weeks. This is not a complicated process but it is not easy. There are various reasons for this but that is not important here. IF you need an audit, the process is the same and the auditors check the annual financial statements before they are signed.

What about tax?

Tax is a separate process and is stapled onto the back of the accounting process and lands up with a tax return being submitted and tax paid if necessary.

In brief the steps (and ROUGH timeframes) are as follows:

  1. Source documents are sent to accountant or relevant person (quite short timeframe)
  2. All source documents are collected and entered into the accounting system (can be a long timeframe – remember the invisible building?). They are used to compile the trial balance.
  3. Trial balance is converted into annual financial statements (short time frame)
  4. Auditors enter if necessary.
  5. Everything is signed off.
  6. Tax is submitted.
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