The accounting department is a very crucial department for any business because it handles the accounts of the company and helps the business comply with government ruling. It is for this reason that the subject plays a very heavy role when one goes to school and enrolls in a business course. For those who do not really know much about accounting cayucos, here are some of the basics to learn.
A lot of people think that this subject is all about numbers, math, and a lot of formulas. Although there is some math involved, there really is only one formula that one has to think about when handling this entire process. The only formula to take note of is that assets must always equal liabilities and company equity.
Now, assets refer to the belongings of the company that are useful for generating more sales. These can be money or other intangible and tangible assets useful for the company. The liabilities refer to the expenses or things that cost money but do not generate sales. Lastly, the equity refers to the capital that was put into the company.
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.
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.
Lastly, one will make the equity statement which will show how the equity, or the capital of the business has changed throughout the year. One will know if the capital decreased, increased, or just stayed the same. The balance sheet, equity statement, and income statement are the three main financial statements that can tell the status of the company and have to be submitted the main government body handling company accounts.
Now, the above mentioned lessons are the basics of the accounting process. Every accounting department has to know about this process. It is the most basic one that everything else would follow.
A lot of people think that this subject is all about numbers, math, and a lot of formulas. Although there is some math involved, there really is only one formula that one has to think about when handling this entire process. The only formula to take note of is that assets must always equal liabilities and company equity.
Now, assets refer to the belongings of the company that are useful for generating more sales. These can be money or other intangible and tangible assets useful for the company. The liabilities refer to the expenses or things that cost money but do not generate sales. Lastly, the equity refers to the capital that was put into the company.
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.
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.
Lastly, one will make the equity statement which will show how the equity, or the capital of the business has changed throughout the year. One will know if the capital decreased, increased, or just stayed the same. The balance sheet, equity statement, and income statement are the three main financial statements that can tell the status of the company and have to be submitted the main government body handling company accounts.
Now, the above mentioned lessons are the basics of the accounting process. Every accounting department has to know about this process. It is the most basic one that everything else would follow.
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