4 Stages of accounting

Identifying and Recording Transactions

The accountant's first step when dealing with financial statements is to identify
and record all transactions. The accountant goes through all receipts, vouchers and other
paperwork the business generates when it engages in transactions. He records each
transaction in a log. Usually, recording transactions consists of listing the date, time and
amount of the transaction, whether the transaction brought money in or required the
business to spend money and a brief description of the transaction.
Sorting and Classifying Transactions

Once the accountant records all the transactions for a given period of time, she
must classify the transactions. First, she groups transactions by whether they represent
income or expenses. She categorizes transactions within those two groups into subgroups.
For example, she groups all sales together, all returned products together and all travel
expenses together. She records the expenses according to group and subgroup in the
company's ledger.
Summarizing and Presenting

The accountant's next task is to summarize the information he organized. During

this stage, the accountant may generate graphs or charts as well as putting the information
in an easy-to-read format. The accountant generates financial statements such as the
balance sheet or cash flow sheet during this phase so investors and customers can easily
follow his summary of the information. He may use computer software to help generate
these financial statements.
Interpreting Data

The accountant's final step in the financial statement process is to analyze the data
and determine whether the business can reduce expenses or increase revenues. The
accountant may meet with company officers to go over this information so they can make
informed decisions about changes to make to the business for the next quarter. After this
meeting, the business owners implement changes and begin submitting new transactions
to the accountant for the next quarter's statement.

Recording
Recording or bookkeeping is a basic phase of accounting. It is where all financial
transactions are recorded in a systematical and chronological manner in appropriate
books or databases. Accounting recorders are the documents and books involved in
preparing financial statements, these include records of assets, liabilities, ledgers,
journals and other supporting documents such as invoices and checks.
Classifying
Classifying involves sorting and grouping similar items under the designated name,
category or account. This phase uses systematic analysis of recorded data in which all
transactions are grouped in one place. For example, "food expenses" might be a
category that accountants use to classify expenses relating to company events or travel
related meetings etc. A "ledger" is the book in which classifications are recorded.
Summarizing
This refers to the summarizing of the data after each accounting period specific to a
particular company, such as a month, quarter or year. The data needs to be presented in
a manner which is easy to understand and is generally used by both external and
internal users of the accounting statements. Graphs and other visual elements are often
used to complement the text data and can be used in meetings, to relate information via
in house intranets or post company information.
Interpreting
Interpreting in the accounting process is concerned with analyzing financial data, and is
a critical tool for decision-making and strategic management. This final function
interprets the recorded data in a manner which allows end-users to make meaningful
judgments regarding the financial conditions of a business account, as well as the
profitability of business operations. This data can then be used to prepare future plans
and frame policies to execute financial plans.

The four phases of accounting are as follows:

1) Recording

Recording is the first phase of accounting in which all monetary information is recorded
in order to make a record that can be used for various needs. Accounting records are used
for taxes, budgeting, reporting and business plans.
Without recording the monetary transactions it will be hard to determine where a business
or person has spent their money. Accounting is used in personal and business situations.
During the recording phase, transactions have to be classified into categories. This is for
tax purposes. In taxation there are different categories that can provide savings.
2) Classifying
In order to determine how much one spent in each of the categories one has to classify
the records. For example in a business, office supplies can be deducted from the taxes.
Dining and entertainment can also be used as a deduction.
3) Summarizing
After the recording phase and the classification stage comes summarizing the various
categories into a linear sheet of information that is easier to read. From this one can
discover how much was spent, what was kept, what was paid out, where and other
information.
The summarizing stage makes the interpretation of the data that much easier. One has to
be able to interpret the data to find out what may be changed, what has changed, and
where the person or company is going financially. Often in the interpretation things such
as where one can budget better or where one needs to find money for the next year can be
found.
4) Interpreting
If you look at it from a business standpoint there may be equipment that is needed so
interpreting the data can help find the extra money for the equipment. It can also be used
as a phase to determine stock information.
The four phases of accounting are recording, classifying, summarizing and interpreting.
Some people who work in finance often say that communication, although it is not
officially one of the accounting phases, it should still be considered an important step.
This means that good communication must be observed during all four phases of the
accounting cycle to help things run as smoothly as they possibly can.