Question: Which of the following is the first step in accounting?
A Prepare financial statement
B Analyze financial transactions
C Record journal entries
D Identify financial transactions
Answer: Identify financial transactions
| Steps | Description |
| Step 1. Identify financial transactions | · The first step involves identifying and collecting all relevant financial data, including receipts, invoices, bank statements and other documents. |
| Step 2. Analyze transactions | · Examine the collected data to identify and categorize financial transactions such as income, expenses, assets and liabilities. |
| Step 3. Record transactions | · Enter the transaction details into the accounting system, typically using journal entries or accounting software. |
| Step 4. Post to ledgers | · Transfer journal entries to appropriate ledgers like general ledger, subsidiary ledgers for accounts receivable or accounts payable). |
| Step 5. Prepare trial balance | · Summarize ledger balances to ensure they are in balance and that debits equal credits. · It’s a preliminary check of accuracy. |
| Step 6. Make adjustments | · Adjust entries for accruals, deferrals, depreciation and other necessary corrections to ensure accurate financial reporting. |
| Step 7. Prepare financial statements | · Create financial statements, including the income statement, balance sheet and cash flow statement, based on adjusted balances. |
| 8. Close the books | · Close temporary accounts (e.g., revenue and expense accounts) by transferring their balances to the retained earnings account. |
| 9. Review and audit | · Review financial statements and conduct internal or external audits to verify accuracy and compliance with regulations. |
| 10. Prepare reports | · Generate financial reports for management, shareholders, tax authorities and other stakeholders. |
| 11. Make financial decisions | · Use financial information to make informed business decisions, set budgets and plan for the future. |
| 12. Maintain records | · Keep records, reports and documents for future reference, compliance and auditing purposes. |
| 13. Continuous monitoring | · Continuously monitor financial performance and make adjustments as needed to achieve financial goals. |