Accounting is as a process of recording, reporting, summarizing, interpreting economic data. The accounting assists in making a decision, effective choices of a firm, by giving information on the financial status of the company.
Today, accounting is used by everyone, and a good understanding of it is beneficial to all. Accountancy act as a language of finance. It is essential to understand the basics of accounting before going into the depth of accounting.
Accounting is used in recording financial transactions to see the financial status of a business. It reports and analyses the statistics in documents known as “financial statements”. It is also referred to preparing a balance sheet. A format of balance sheet is such that it gives a view of a firm’s liabilities, assets and owner’s equity at a given time.
Accounting Basic Terms
A quick view of some key accounting terms.
- Accounting equation – It is the basis of the double-entry process.
Assets = Liabilities + Stakeholders’ equity
- Account receivable – These are the money owed by buyers after products or services is used or delivered.
- Account payable: Money that an individual or a company owe their suppliers and creditors once the product or services are delivered.
- Assets (current and fixed) – These are assets which can be utilized within one year.
- Balance sheet – It provides a firm’s liabilities, assets and owner’s equity for a particular period.
- 6. Capital – It is the goods, cash, and asset. Substrating current assets can evaluate working capital from current liabilities.
- Accounting methods – In this method, the firm either chooses accrual or cash accounting. Small businesses prefer cash accounting, as all expenditure and revenues are recorded at the actual time when the transaction is happening.
- Double-entry bookkeeping – Here, all the transaction is documented at-least in two accounts—debit in one account and credit in another.
- Cash flow statement – It determines the balance between the cash expenditure incurred and cash earned.
- General ledger – It gives complete information about the financial transactions of a company.
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