Introduction to Accounting

 

Accounting is the language of business…

If you understand basic accounting principles, then you’ll have a much more solid understanding of business in general.

Some of the basic accounting terms that you’ve probably heard before are things like assets, liabilities, income statement, balance sheet, gains, losses, revenues, expenses, and retained earnings. Believe me, there’s more… but we’ll get into that later.

Here are the basics of accounting:

The Accounting Equation

There is a simple equation that governs financial accounting…

The Income Statement

The income statement is what tells you whether the company is profitable or not. It involves the revenues, or the money that the company earned, and the expenses; the money that was spent to earn those revenues.

The Balance Sheet – Assets

The balance sheet is a report that shows a company’s assets, liabilities, and owner’s equity at a given point in time. Assets are things that the company owns.

The Balance Sheet – Liabilities and Owner’s Equity

Liabilities and owner’s equity are on the right side of the balance sheet, and they basically show who owns the assets of the company… the owners and creditors.

The Statement of Cash Flows

The cash flow statement is a report that shows how a company’s cash has changed during a specific time interval.

The Double Entry System

The whole accounting system is based on an ancient procedure known as double entry: every transaction will be recorded into at least two accounts within the accounting system.

 

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