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.
The whole process of handling accounts revolves around the concept of balance. Specifically, assets must always be equal to the sum of liabilities and equity. If they are not the same, then the accounts are not balanced and there is something wrong somewhere.
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.
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.
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.
The third and last financial statement to make is the statement of equity which will show the changes in the capital during the year. One can find out whether the capital increased, decreased, or was not touched. Now that all the three statements are made, the accountant must now collect them and pass them over to the main governing body handling accounts to comply.
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.
The whole process of handling accounts revolves around the concept of balance. Specifically, assets must always be equal to the sum of liabilities and equity. If they are not the same, then the accounts are not balanced and there is something wrong somewhere.
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.
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.
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.
The third and last financial statement to make is the statement of equity which will show the changes in the capital during the year. One can find out whether the capital increased, decreased, or was not touched. Now that all the three statements are made, the accountant must now collect them and pass them over to the main governing body handling accounts to comply.
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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