Bookkeeping for a Small Business

The process of accounting starts with analyzing financial transactions and entering the ones pertaining to the business entity into the accounting system. 

A source document or business document serves as the foundation for recording a transaction.

Journal Entries

Business transactions are recorded in a journal (also known as Books of Original Entry) in a chronological order using the double-entry bookkeeping system. The journal entries include two accounts - debit and credit.

Trial Balance

A trial balance is prepared to test if the total debits equal total credits. The accounts are extracted from the ledger and arranged in a report. The balances of the debit and credit columns should be equal.

Adjusting Entries

At the end of the accounting period, the accountant must prepare the adjusting entries to update the accounts that are summarized in the financial statements. For example, income earned but not recorded in the books.

Adjusted Trial Balance

Once the adjusting entries are made, an adjusted trial balance must be prepared. This is done to test if the debits match the credits after the adjusting entries are made. This is the final step before the preparation of the business' financial statements.

Financial Statements

The financial statements which include the income statement, statement of changes in equity, balance sheet, statement of cash flow and notes are the end products of the accounting system.