Introduction

Accounting isn’t a difficult topic. In fact, it’s quite straightforward once you get the hang of it. I started this blog because I saw how many people were confused about accounting and wanted to clear up any misconceptions they may have had about basic accounting principles. So stick around, let’s dive in together!

Bookkeeping isn’t accounting

Bookkeeping is the process of recording business transactions. Accounting, on the other hand, is the process of summarizing, analyzing and reporting business transactions.

In other words: bookkeeping = recording and reporting; accounting = analyzing and summarizing.

The Income Statement (also called the Profit and Loss Statement) records revenue and expenses.

An income statement is a financial statement that shows a company’s profit or loss over a period of time. It’s also called the profit and loss statement, or P&L for short.

The income statement, along with the balance sheet and cash flow statements, are considered to be the three main financial statements.

The Balance Sheet shows a business’ assets, liabilities, and equity at a given point in time.

The balance sheet shows a business’ assets, liabilities, and equity at a given point in time. Assets are things that the company owns; liabilities are debts owed by the company; equity is the difference between assets and liabilities. Since this information is usually prepared at the end of each period (usually monthly or quarterly), it gives you an idea of what your company’s financial situation was like at that point in time. The balance sheet can be broken down into three major categories:

• Current assets – These include cash on hand and money that hasn’t been collected yet but is expected to come in during your current fiscal year (commonly referred to as accounts receivable).
• Long-term assets – These include land or buildings owned by your business over which ownership rights have not expired (commonly referred to as fixed assets).
• Current liabilities – These include any bills due within one year such as payroll taxes, rent payments due within one year (commonly referred to as short-term debt).

The Statement of Cash Flows shows the changes in a business’ cash position resulting from its operations, investing, and financing activities.

Cash flow is the lifeblood of your business. Understanding how cash flows through your business is key to managing it well. A cash flow statement shows how much cash a business has at any given time, as well as what caused the changes in its cash position: operations, investing and financing activities. Understanding this can help you decide where to invest and where to borrow money for growth.

The statement of cash flows is an important tool for monitoring the health of your company’s financial health—and it’s easy to understand! Here’s what we’ll cover:

• The different kinds of accounts used in accounting statements
• How each account relates to a specific type of transaction or activity
• The importance and role of dollars-and-cents numbers

Accrual Accounting records revenue when it’s earned and expenses when they’re incurred.

First, you need to understand that accrual accounting records revenue when it’s earned and expenses when they’re incurred. This is known as the matching principle because basically it allows us to match our revenues with our expenses.

So let’s look at an example of how this works. Let’s say that I sell you a widget for $1 million dollars on January 11th, 2019. You give me your money, and I put it in my wallet or bank account (which ever one you prefer). Now according to accrual accounting principles I am only allowed to record the sale when it happens—in this case on January 11th—and not before then!

This makes sense if we think about what would happen if we didn’t record sales until after they occurred: If a client were waiting outside your business with cash in hand ready to pay for services rendered but wanted nothing more than an invoice first, who knows how long their patience would last? Imagine all those unhappy customers demanding their money back because nothing was done yet!

Double-Entry Accounting is debits must equal credits.

One of the most important parts of double-entry accounting is that debits must equal credits. The equation for the basic accounting equation is:

Debits – Credits = 0.

This means if you want to record a transaction, you have to use both sides of your T accounts. If you are recording an increase in an asset account (a debit), this will mean decreasing something else (a credit). Likewise, if you’re recording a decrease in an asset account (a credit), then you need to increase something else (another debit). To help with keeping track, many people use what’s called “T-Accounts” which are basically two columns listing your assets on one side and liabilities/equity on the other side with equal amounts. Then when entering transactions into them they write them down as debits or credits depending on whether they have increased or decreased either column respectively.

Generally Accepted Accounting Principles are a set of rules used by accountants to record and prepare financial statements. U.S. GAAP is more extensive than International Financial Reporting Standards (IFRS).

Generally Accepted Accounting Principles (GAAP) are a set of accounting rules used by accountants to record and prepare financial statements. U.S. GAAP is more extensive than International Financial Reporting Standards (IFRS).

In short, GAAP is a set of rules that determine how companies should record revenue, expenses and other items on their balance sheets or income statements. It’s important to understand these rules because they’re used by every publicly traded company in the world — even if they aren’t based in the United States!

Tax Accounting is governed by the Internal Revenue Service (IRS) rules. These rules often differ from GAAP rules.

In the world of accounting, there are two sets of rules to follow: GAAP and Tax. GAAP is generally referred to as “generally accepted accounting principles.” It is governed by the Financial Accounting Standards Board (FASB) and helps establish standards for businesses to follow when recording financial transactions.

Tax accounting is different from GAAP because it is governed by the Internal Revenue Service (IRS). Tax rules are different from those used for reporting purposes; they were created in order to help businesses determine how much income tax they owe each year.

Learning about basic accounting can help you run your business more effectively!

If you’re a small business owner, understanding basic accounting can help you run your company more effectively. Accounting is a way of tracking and summarizing business transactions so that they can be analyzed and reported. It helps you make better decisions about how to use resources and make sure your company has enough money in the bank.

If you understand basic accounting principles—like debits, credits, cash flow and profit/loss statements—you will be able to make smart decisions about how to spend money and keep track of what’s coming in (and going out).

Conclusion

And that’s it! We hope this post helps you understand the basics of accounting, and get you started on your way to becoming a more successful entrepreneur. Remember, it’s not as hard as you may think—and if all else fails, we’re here for support any time!