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.
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.
To break the formula down, one must first know what are assets, equity, and liabilities. When one talks about assets, that may refer to money, equipment, or even stuff like intangible assets. Liabilities, on the other hand are the opposite and are expenses that do not generate income. Finally, equity is capital that was invested 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.
Now, this principle is very much seen whenever one has to record the day to day transactions. One will be recording each transaction as a debit and a credit. In order to follow the principle of balance, the debit and the credit of each transaction must always be the same.
The recording of debits and credits is known as journalizing. Through journalizing, one can analyze the accounts and place them in a general ledger. From this step, one will place all the accounts from the general ledger into a trial balance to get ready for making a balance sheet.
Once one makes the balance sheet, otherwise known as the statement of financial position, he will then make an income statement. The income statement will list down all the income generated by the company versus the expenses. One will subtract the total expenses to the total income and the difference will tell the company if they are at a loss or gain.
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.
Now the basic lesson that one must learn when it comes to accounting is the accounting process. The whole process was actually given above and is the most basic thing that anyone, whether an accountant or not, should learn. As long as one knows the details of the process, then he will know how handling the company accounts will work.
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.
To break the formula down, one must first know what are assets, equity, and liabilities. When one talks about assets, that may refer to money, equipment, or even stuff like intangible assets. Liabilities, on the other hand are the opposite and are expenses that do not generate income. Finally, equity is capital that was invested 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.
Now, this principle is very much seen whenever one has to record the day to day transactions. One will be recording each transaction as a debit and a credit. In order to follow the principle of balance, the debit and the credit of each transaction must always be the same.
The recording of debits and credits is known as journalizing. Through journalizing, one can analyze the accounts and place them in a general ledger. From this step, one will place all the accounts from the general ledger into a trial balance to get ready for making a balance sheet.
Once one makes the balance sheet, otherwise known as the statement of financial position, he will then make an income statement. The income statement will list down all the income generated by the company versus the expenses. One will subtract the total expenses to the total income and the difference will tell the company if they are at a loss or gain.
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.
Now the basic lesson that one must learn when it comes to accounting is the accounting process. The whole process was actually given above and is the most basic thing that anyone, whether an accountant or not, should learn. As long as one knows the details of the process, then he will know how handling the company accounts will work.
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