Accounting subjects

1. Introduction

Accounting is a vital part of any business. Accounting is the recording and measurement of financial transactions within a business. Without accurate accounting practices, businesses could not make informed decisions about their finances. Accounting helps to provide detailed information about a businesss financial performance, which is necessary for determining how best to invest in the future. It is important to understand the various types of accounting, including basic accounting principles, double-entry bookkeeping, and the various accounting systems used by businesses.

2. Basic Accounting Principles

The basic accounting principles serve as the basis for all other accounting system that a business may use. These principles include the accrual basis of accounting, the matching principle, and the going concern. The accrual basis of accounting states that a business must record its transactions in the same period they occur. The matching principle means that expenses should be matched to their corresponding revenue. The going concern principle states that a business should continue to remain operational until an understandable change in business circumstances exists.

3. Double-Entry Bookkeeping

Double-entry bookkeeping is a type of accounting that requires two different entries for each transaction. This system requires that for every debit recorded on an account, there must also be an equal and opposite credit entry on a different account. This is done to ensure accuracy and to keep track of all business transactions. Double-entry bookkeeping is a more complicated system than the single-entry method, but it helps to provide greater detail and accuracy.

4. Cash Basis Accounting

Cash basis accounting is a type of accounting in which transactions are recorded when cash is exchanged. This system is based on the accrual basis of accounting, except that instead of recording transactions when they occur, they are only recorded when funds are exchanged. This type of accounting is most beneficial for businesses that have uniform cash flow, as it does not make sense to record income or expenses if the funds for the transaction have not yet been received.

5. Accrual Basis Accounting

Accrual basis accounting is the most commonly used type of accounting system. This system is based on the accrual basis of accounting and requires that a business record transactions when they occur, regardless of whether cash has been exchanged or not. This type of accounting is the most beneficial for businesses that see irregular or unpredictable cash flow, as the financial results of each transaction are recorded accurately.

6. Conclusion

Accounting is an essential part of any business operation. A business needs to understand the various types of accounting and the basic accounting principles in order to make informed decisions about their finances. Double-entry bookkeeping and accrual basis accounting are the two most commonly used accounting systems, and both are beneficial in their own way. Ultimately, it is up to the business to decide which type of accounting system is right for them.

Accounting is an integral part of business operations. It provides the framework for recording and reporting financial activities, as well as providing historical data for analysis in the form of financial statements. Accounting consists of five main components or categories of chart of accounts: Assets, Liabilities, Equity, Revenue and Expenses.

Assets are resources that are owned or controlled by a company. Examples of assets include total cash, accounts receivable, inventory, machinery and equipment as well as land and buildings.

Liabilities are amounts owed to others by a company. Such liabilities can include accounts payable, income taxes owed, interest payments and bank loans.

Equity is the residual value of the companys assets after subtracting the liabilities that must be paid to the creditors. Equity is referred to as the companys net worth and is typically determined by subtracting liabilities from assets.

Revenue is the money a business earns and is categorized as “earned income”. Examples of revenue sources include sales and services performed for customers as well as interest and dividend payments on investments.

Expenses refer to the costs associated with operating a business. Examples include cost of goods sold, advertising costs, insurance premiums, office supplies, administrative costs and any other overhead outflows.

Income taxes, investments and owner distributions are three additional accounting components that are often included in the chart of accounts. Income taxes are the taxes a business must pay to local, state and federal governments based on their operations. Investments may include stocks and bonds purchased for long-term return on investment. Owner distributions refer to any distributions made to business owners as a return on their investment into the company.