Accounting Basics by azer33


More Info
									If you intend to run a business or pursue an accounting career, then you
will find to be a crucial starting point. You don’t
have to be a professional to manage your business effectively. With sound
knowledge and command of accounting basics, you can manage business
finance and assets very well. For now, we shall delve straight into some
of the key items that should be acquainted with in accounting.
Debits & Credits Basics

Actually, these two concepts form the backbone of all accounting systems.
By comprehending these two accounting basics, you’ll have understood the
entire system. As you will come to learn, each entry made in a general
ledger either features as a credit or debit entry. In addition, all
debits must equal credits entered in the book of accounts. Failure of
which causes the balance sheet to be out of balance. Depending on the
kind of entries made, the debit or credit can either increase or decrease
the account balance.
Accounting Equation

This equation is a significant part of accounting basics and forms the
foundation of almost all transactions. The equation comprises of Capital
plus liabilities which cumulatively equal assets as indicated below:

Capital + Liabilities= Assets
Assets & Liabilities Accounting Basics

Basically, assets and liabilities also form part of accounting basics. A
typical balance sheet is made up of debit and credit balances which
either feature as assets or liabilities. This is normally charted in a
balance sheet and the two falls on separate sections. A debit increase
will increase the value of the assets while a credit will in effect lower
their value.

For your information, assets are simply belongings that increase the
value of your firm or business, they are categorised into tangible and
intangible assets. Tangible constitute such things as cash in hand,
business property, and machinery. Intangible assets constitute the brand
name, trademark, good will, and the rights or value of the firm.

On the other hand, liabilities are the debts of the firm or what is owed
to creditors. It could be in the form of cash loans or purchases. In
accounting basics, they represent the financial obligation of the firm or
business towards other entities or persons. Liabilities can be sub-
divided further into short and long term once you draw up the balance
Owners’ Equity Accounting Basics

This is also crucial part of accounting basics and follows the liability
once the financial statements are drawn up. This basically means the
apparent difference between cumulative assets and liabilities. If the
assets exceed liabilities, then there is a positive owner’s equity and
vice versa. Some of the items that feature in this section include the
stock, capital accounts, and all retained earnings.
Other notable things to note about accounting basics are the book of
accounts and the general ledger which is drawn when making entries of
business transactions. The rules of accounting cut across the board,
however, their variations in the way businesses and firms draw up their
financial statements or report on the business activities of a certain
fiscal year.

That about wraps it up for accounting basics, now take the time to search
around the site to get a more in depth look at accounting starting with
“What is Accounting?“

To top