The four phases of accounting are as follows:
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.
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.
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.
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.
• The first phase of accounting is recording which can also be called bookkeeping. During this phase, any financial transactions that have taken place over the financial period, whatever time frame that may be, must be chronologically recorded in a systematical way. The accounting period can either be each month, quarterly or at the end of every year. The correct books and databases must also be used.
• The second phases of accounting is classifying, which means that all financial items and transactions must be sorted, organized and grouped under certain names, categories and account depending on the nature of the transaction for example, travel expenses.
• The third phrase is summarizing means that all data has to be summarized at the end. It is essential that this summarized data is easy to understand for people who work within the accounting department and for people who are not, as these files may be read by people from all departments within the company. Visual aids such as charts and graphs may also be used alongside the data presented.
• The final stage of accounting is interpreting which is where people look at the data that has been recorded, classified and summarized and they interpret that data. By doing this, the people examining the data will be able to reach informed decisions about the financial status of a company. This data will also be used to come up with future financial plans for the business.