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, when one will think about handling accounts, he must always think about balance, hence the formula. The assets must always have the same number or value as the liabilities plus the equities. The balance can be seen in the statement of financial position which will be discussed later.
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 known as the journalizing of accounts. With this process, one can actually monitor everything going on in the company day by day. The next steps involve placing all the debits and credits into a ledger then organizing them all together to form a trial balance.
This trial balance is the first step to creating the balance sheet because it serves as the first draft. Once the balance sheet is organized and created, the second financial statement to make is the income statement. The income statement pits the total income and expenses together with the difference being either the net profit or the net loss.
Finally, one will then make the statement of changes in equity. This one shows the changes in the capital of the business in one whole year. This will tell the accountant if the capital has been increased, decreased, and if it is finished. This is the third financial statement that will be made for the process. These three financial statements will then be collected by the accountant to be submitted to the auditor.
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, when one will think about handling accounts, he must always think about balance, hence the formula. The assets must always have the same number or value as the liabilities plus the equities. The balance can be seen in the statement of financial position which will be discussed later.
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 known as the journalizing of accounts. With this process, one can actually monitor everything going on in the company day by day. The next steps involve placing all the debits and credits into a ledger then organizing them all together to form a trial balance.
This trial balance is the first step to creating the balance sheet because it serves as the first draft. Once the balance sheet is organized and created, the second financial statement to make is the income statement. The income statement pits the total income and expenses together with the difference being either the net profit or the net loss.
Finally, one will then make the statement of changes in equity. This one shows the changes in the capital of the business in one whole year. This will tell the accountant if the capital has been increased, decreased, and if it is finished. This is the third financial statement that will be made for the process. These three financial statements will then be collected by the accountant to be submitted to the auditor.
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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