Accounting is the stream of business. If you don’t know to account very well then you cannot handle your business very well. So you have to learn basic accounting. For example, you want to set up a business then if you don’t know about business strategy then you will fall in-dept very quickly or you have to shut off your business.
So, if you want to run a successful business, it may be big or small that does not matter. Small business profit is small and risk is also small. Besides this large business is the opposite. So come to the point of Basic accounting. I have learned a few things about accounting which I going to share with you. So let’s start
What Is Basic Accounting?
Some basic accounting terms you will learn include revenue, expenses, assets, liabilities, income statement, balance sheet, and cash flow statement. You will get acquainted with Accounts Debit. If you want to do a course then you can check this website once.
What are the 5 basic accounting principles?
There are mainly 5 basic accounting principles has. Now I discuss one by one with you. 5principles of accounting are;
- Revenue Recognition Principle,
- Historical Cost Principle,
- Matching Principle,
- Full Disclosure Principle,
- Objectivity Principle.
Revenue Recognition Principle
- The revenue recognition principle mainly relates to revenue recognized in the income statement of the enterprise.
- Revenue is the gross inflow of cash, receivables or other consideration, which arises during the general activities of the enterprise from the sale of goods, the rendering of services and use of enterprise resources by the interests of others, royalties, and dividends.
Historical Cost Principle
- According to historical cost theory, an asset is usually recorded in accounting records at the price paid to acquire it at the time of its acquisition and costs become the basis for accounts during the acquisition period and later the accounting period.
- According to the matching principle, expenses incurred in an accounting period must coincide with revenue recognized in that period, for example, if revenue is recognized on all goods sold during a period, the goods sold. The cost should also be recovered for that period.
Full Disclosure Principle
- According to this theory, financial statements should serve as a means of expressing and concealing. Financial statements must disclose all relevant and reliable information they represent so that the information can be useful to users.
- According to the fairness principle, accounting data must be definitive, verified and free from the personal bias of the accountant.
- In other words, the Fairness Doctrine requires that every recorded transaction/event in the books of accounts should have sufficient evidence to support it.
What are the basic accounting concepts?
Concept of Revenue
Revenue is recognized at the time of earning, and expenses are recognized when the asset is consumed.
Concept of conservatism
Revenue is recognized only when there is a reasonable certainty that it will be realized, while expenses are recognized sooner when there is a reasonable probability that they will be incurred.
Concept of Consistency
Once a business chooses to use a specific basic accounting method, it should continue to use it on a forward basis.
Economic unit concept
Transactions of a business should be kept separate from its owners. The concept of anxiety is going away. Financial statements are prepared on the assumption that the business will remain in operation in future periods.
Concept of matching
Revenue-related expenses should be recognized in the same period in which revenue was recognized.
Concept of materiality
Transactions should be recorded when not doing so can change the decisions made by the reader of a company’s financial statements.
Here is a video guide to see this basic accounting video to clear your concept
What are the 5 types of accounts?
There are five account types: Assets, Liabilities, Equity, Revenue (or Income) and Expenditure. To fully understand how to post transactions and read financial reports, we must understand these types of accounts. These are basic accounting. You can take a basic course at https://www.guru99.com/
What are the 8 branches of accounting?
There are five account types: Assets, Liabilities, Equity, Revenue (or Income) and Expenditure. To fully understand how to post transactions and read financial reports, we must understand these types of accounts.
What are the 3 golden rules of accounting?
- Debit, receiver, credit payer. This principle is used in the case of personal accounts. …
- What comes in debit, what comes out in credit. This principle is applied in the case of real accounts. …
- Debit all expenses and losses, credit all income and profits.
42 Basic Accounting Terms for All Business Owners
There are some basic accounting terms. Everyone should know the details of the basic terms. Here, in this post, I mention 42 basic accounting terms, which divided into 3 basic parts. 1. Income Statement Terms. 2. Balance Sheet Terms. 3. General Terms.
Now let’s talk about these terms details.
Income Statement Terms
The Income Statement AKA Profit and Loss Statement is the second of two general financial statements. These are words that are most commonly used to refer to this reporting tool.
1. Depreciation (Dep)
Depreciation is a term that is responsible for the loss of value in an asset over time. Generally, an asset must have sufficient value to depreciate. The common assets depreciated are automobiles and equipment. Depreciation appears as an expense on the income statement and is often classified as a “non-cash expense”, as it does not have a direct impact on a company’s cash position.
2. Gross Margin (GM)
Gross margin is a percentage divided by gross profit is taken and revenue for the same period. It represents the profitability of a company after deducting the cost of goods sold.
3. Gross Profit (GP)
Gross profit indicates the profitability of a company in dollars, without taking into account overhead expenses. It is calculated by subtracting the cost of goods from revenue for the same period.
4. Net Income (NI)
Net income is the dollar amount that is earned in profits. It is calculated by taking revenue and subtracting all expenses over a given period, including COGS, overhead, depreciation, and taxes.
5. Revenue (Sales) (Rev)
Revenue is any money earned by the business.
6. Net Margin
Net margin is the percentage amount that represents the profit in relation to a company’s revenue. It is calculated by taking net income and dividing it by revenue for a fixed period.
7. Expense (Cost)
Expenses are any costs incurred by the business.
8. Cost of Goods Sold (COGS)
Cost of goods Costs sold is directly related to the manufacture of the product or service. Not included in this category are the costs required to run a business. An example of COGS would be the cost of materials, or direct labor, to provide the service.
9. Income Statement (Profit and Loss) (IS or P&L)
An income statement (often referred to as profit and loss, or P&L) is a financial statement that shows revenue, expenses, and profits over a certain period of time. Earned income is shown at the top of the report and the various costs (expenses) are deducted until all costs are accounted for; Result Net Income.
Here is a common question for an accountant interview. See this video to clear your concept.
Balance Sheet Terms
The balance sheet is one of the two most common financial statements created by an accountant. This section deals with potentially confusing terms that relate to the balance sheet.
10. Liability (L)
All debts paid by the company so far are called liabilities. Common liabilities include accounts payable, payroll, and debt.
11. Accounts Payable (AP)
Accounts payable includes all expenses that a business has incurred but has not yet paid. This account is recorded as a liability on the balance sheet as it is a loan given by the company.
12. Accounts Receivable (AR)
Accounts receivable includes all revenue (sales) provided by a company but has not yet collected payments. This account is on a balance sheet, recorded as an asset that will likely be converted into cash in the short term.
Inventory is the term used to classify assets that a company has purchased to sell to its customers that remain unsold. Since these items are sold to customers, the inventory account will below.
14. Asset (A)
The company has anything that has a monetary value. These are listed in order of liquidity from cash (most liquid) to land (least liquid).
15. Equity (E)
Equity shows the value left after the liabilities have been removed. Recall the equation = Liabilities + Equity. If you take your assets and deduct your liabilities, you are left with equity, which is part of the company that is owned by investors and owners.
An expense that has not been paid but is described by the term Accrued Expense.
17. Book Value (BV)
As soon as an asset is depreciated, it loses value. The book value reflects the asset’s base value, reducing any accumulated depreciation.
18. Balance Sheet (BS)
A financial statement that reports on all the assets, liabilities and equity of a company. As its name suggests, a balance sheet is followed by the equation <Assets = Liabilities + Equity>.
Of course, there are those basic accounting terms that are not related to any particular financial statement. For those people, we have reserved the “normal” category.
19. Cash Flow (CF)
Cash flow is a term that describes the flow and outflow of cash in a business. Net cash flow for a period of time is found by taking the beginning cash balance and subtracting the ending cash balance. A positive number indicates that more cash flowed into the business than outside, where a negative number indicates the opposite.
A credit is an increase in a liability or equity account or a decrease in an asset or expense account.
Diversity is a method of reducing risk. The goal is to allocate capital among a multitude of assets so that the performance of a single asset does not determine the performance of the total.
22. Enrolled Agent (EA)
An enrolled agent is a professional accounting designation assigned to professionals who have conducted successful tests showing expertise in business and personal taxes. To ensure compliance with the IRS, enrolled agents are typically asked to complete business tax filings.
Interest is the quantity paid on a loan or line of credit score that exceeds the reimbursement of the predominant stability.
24. Generally Accepted Accounting Principles (GAAP)
Those are the guidelines that each one accountant abide by when acting the act of accounting. these general rules have been installed in order that it’s far easier to evaluate ‘apples to apples’ while searching at a commercial enterprise’s economic reports.
Liquidity is a term referencing how quickly something can be converted into cash. for instance, stocks are more liquid than a residence considering that you could promote stocks (turning it into cash) more speedy than real property.
26. On Credit/On Account
A buy that occurs on credit score or on the account is a buy in order to be paid at a future time, but the customer receives to revel in the gain of that buy straight away. “bartender, positioned it on my tab…”
27. Journal Entry (JE)
Journal entries are how updates and modifications are made to a corporation’s books. each magazine access ought to include a unique identifier (to report the access), a date, a debit/credit, a quantity, and an account code (that determines which account is altered).
The term allocation describes the process of allocating funds for different accounts or periods. For example, a cost may be allocated over several months (as in the case of insurance) or over multiple departments (as with administrative costs with multiple departments).
29. Business (or Legal) Entity
It is the legal structure, or type, of business. Common company structures include sole proprietors, partnerships, limited liability corp (LLC), S-Corp and C-Corp. Each unit has a unique set of requirements, laws and tax implications.
A debit is an increase in an asset or expense account or a decrease in a liability or equity account.
31. Fixed Cost (FC)
A fixed cost is one that does not change with sales volume. For example, if the company sells more then rent and salary do not change. There is a variable cost as opposed to a fixed cost.
Overhead is the one’s costs that relate to jogging the commercial enterprise. they do now not consist of costs that make the product or supply the carrier. for example, overhead frequently includes rent and government salaries.
Payroll is the account that indicates payments to employee salaries, wages, bonuses, and deductions. regularly this could seem at the balance sheet as a liability that the organization owes if there may be accrued holiday pay or any unpaid wages.
34. Return on Investment (ROI)
Firstly, this term mentioned the profit that an enterprise becomes making (return), divided with the aid of the funding required. today, the time period is used greater loosely to encompass returns on various tasks and targets. for instance, if a company spent $1,000 on advertising and marketing, which produced $2,000 in earnings, the enterprise may want to the country that its ROI on marketing spend is 50%.
35. Trial Balance (TB)
Trial stability is a listing of all debts in the preferred ledger with their stability quantity (either debit or credit). the total debits need to equal the whole credit, consequently the balance.
36. Basic Accounting Period
An accounting period is specified in all financial statements (income statement, balance sheet and statement of cash flow). The period states the period of time stated in the statements.
37. General Ledger (GL)
A general ledger is a complete record of a company’s financial transactions. GL is used to prepare all financial statements.
38. Present Value (PV)
The present cost is a time period that refers back to the value of an asset nowadays, in preference to a distinctive factor in time. it is based on the concept that money these days is greater treasured than cash tomorrow, because of the concept of inflation.
A receipt is a report that proves the fee turned into made. a business produces receipts while it presents its product or service and it gets receipts while it can pay for goods and services from other organizations. obtained receipts need to be stored and cataloged in order that an agency can prove that its incurred fees are correct.
40. Variable Cost (VC)
Those are charges that change with the number of sales and are the opposite of fixed prices. variable prices growth with greater sales because they’re a rate that is incurred which will supply the sale. For instance, if an organization produces a product and sells extra of that product, it’ll require more raw substances that will meet the growth in demand.
Material is the time period that refers to whether facts affect selections. as an example, if a corporation has revenue within the thousands and thousands of dollars, an amount of $0.50 is hardly cloth. GAAP calls for that all fabric issues ought to be disclosed.
42. Certified Public Accountant (CPA)
The CPA is a professional designation that an accountant can earn by passing the CPA exam and meeting the requirements for both education and work experience, which varies by state.
What is Basic Accounting to Business Owners?
Accounting is the main communication medium of the business, which is the key to running a successful business. Here are the right tools you must know:
Here are the rules, concepts, and principles that makeup accounting. Understand the intricacies of recording transactions and how each of them affects your bottom line.
• Role of accounting in business (financial/managerial accounting)
• Accounting Process
• Users of financial statements
• Basic Accounting Information System
• Accounting concepts, principles, jargon
Understanding Financial Statements
The financial statement is where you can get a quick overview of the financial health of your business; Your revenue, expenses, cash, inventory, and more. Basically, if you have any questions about your business, you can find the answer here.
• Balance sheet
• income details
• cash flow statement
• statement of owner’s equity
Leverage accounting ratios and analysis
Better business decisions are made because they are based on forecasts, ratios, and hard financial evidence. Discover how you can improve your business like never before.
• Analysis and interpretation of financial statements: business conditions • liquidity analysis
• profitability analysis
• activity analysis
• Capital structure analysis
• Accounting tools to make better decisions in business