Accounting happens to be one of the most important parts of a business because it is the process that documents all the assets, liabilities and equity of the company. This is why this subject is one of the most important ones if one is taking up a business course in college. For those who want to know more about the subject, here are some of the basics of accounting cayucos.
The first impression most people would have about this topic is that it takes a lot of math skills and a lot of numbers. While this may be partly true, the subject more entitles analysis of situations, accounts, and figures as compared to memorizing a lot of formulas. In fact, only one formula needs to be memorized which is assets is equal to equity and liabilities.
First, it is very important to know what an asset, a liability, and equity is. Assets are the things that can contribute to income such as merchandise, equipment, cash itself, or even trademarks. Liabilities, on the other hand, refer to the expenses that the company needs but cannot generate income. Finally, the equity is simply the capital that is placed into the business,
Now, the entire principle of accounting circulates around the whole concept of balancing the accounts. As a rule, the assets must always have the same value as the liabilities and equity. They must always be balanced otherwise there was a mistake made along the way.
This concept is vividly seen in the recording of day to day transactions through debit and credit of accounts. As a general rule, one transaction must always have a debit and a credit. The debit and the credit must always equal each other to balance the account.
This process is also called journalizing and is done per day. With journalizing, it is possible to see the outflow and inflow of liabilities and the assets. The debits and credits are collected together to be placed into the ledger accounts which will be brought to the trial balance.
The trial balance is very important because it gives the accountant an idea as to whether the balance sheet or statement of financial position is correct. From there, he will make the income statement of the company. The income statement will tell the accountant whether the business is at a net loss or net gain by subtracting total income with total expenses.
The third and last financial statement to make is the statement of equity which will show the changes in the capital during the year. One can find out whether the capital increased, decreased, or was not touched. Now that all the three statements are made, the accountant must now collect them and pass them over to the main governing body handling accounts to comply.
The things mentioned above are the very basics of accounting. What was covered above is actually the whole process of accounting. It starts with the basic formula, then proceeds to journalizing, then posting, then creation of financial statements.
The first impression most people would have about this topic is that it takes a lot of math skills and a lot of numbers. While this may be partly true, the subject more entitles analysis of situations, accounts, and figures as compared to memorizing a lot of formulas. In fact, only one formula needs to be memorized which is assets is equal to equity and liabilities.
First, it is very important to know what an asset, a liability, and equity is. Assets are the things that can contribute to income such as merchandise, equipment, cash itself, or even trademarks. Liabilities, on the other hand, refer to the expenses that the company needs but cannot generate income. Finally, the equity is simply the capital that is placed into the business,
Now, the entire principle of accounting circulates around the whole concept of balancing the accounts. As a rule, the assets must always have the same value as the liabilities and equity. They must always be balanced otherwise there was a mistake made along the way.
This concept is vividly seen in the recording of day to day transactions through debit and credit of accounts. As a general rule, one transaction must always have a debit and a credit. The debit and the credit must always equal each other to balance the account.
This process is also called journalizing and is done per day. With journalizing, it is possible to see the outflow and inflow of liabilities and the assets. The debits and credits are collected together to be placed into the ledger accounts which will be brought to the trial balance.
The trial balance is very important because it gives the accountant an idea as to whether the balance sheet or statement of financial position is correct. From there, he will make the income statement of the company. The income statement will tell the accountant whether the business is at a net loss or net gain by subtracting total income with total expenses.
The third and last financial statement to make is the statement of equity which will show the changes in the capital during the year. One can find out whether the capital increased, decreased, or was not touched. Now that all the three statements are made, the accountant must now collect them and pass them over to the main governing body handling accounts to comply.
The things mentioned above are the very basics of accounting. What was covered above is actually the whole process of accounting. It starts with the basic formula, then proceeds to journalizing, then posting, then creation of financial statements.
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