If you intend to run a business or pursue an accounting career, then you will find free accounting course to be a crucial starting point. You don’t have to be a professional to manage your business effectively. With sound knowledge and command of accounting basics, you can manage business finance and assets very well. For now, we shall delve straight into some of the key items that should be acquainted with in accounting.
Debits & Credits Basics
Actually, these two concepts form the backbone of all accounting systems. By comprehending these two accounting basics, you’ll understand the entire system. As you will come to learn, each entry made in a general ledger either features as a credit or debit entry. In addition, all debits must equal credits entered in the book of accounts. Failure of which causes the balance sheet to be out of balance. Depending on the kind of entries made, the debit or credit can either increase or decrease the account balance.
This equation is a significant part of accounting basics and forms the foundation of almost all transactions. The equation comprises of Capital plus liabilities which cumulatively equal assets as indicated below:
Capital + Liabilities= Assets
Assets & Liabilities Accounting Basics
Basically, assets and liabilities also form part of accounting basics. A typical balance sheet is made up of debit and credit balances which either feature as assets or liabilities. This is normally charted in a balance sheet and the two falls on separate sections. A debit increase will increase the value of the assets while a credit will in effect lower their value.
For your information, assets are simply belongings that increase the value of your firm or business, they are categorized into tangible and intangible assets. Tangible constitute such things as cash in hand, business property, and machinery. Intangible assets constitute the brand name, trademark, good will, and the rights or value of the firm.
On the other hand, liabilities are the debts of the firm or what is owed to creditors. It could be in the form of cash loans or purchases. In accounting basics, they represent the financial obligation of the firm or business towards other entities or persons. Liabilities can be sub-divided further into short and long term once you draw up the balance sheet.
Owners’ Equity Accounting Basics
This is also crucial part of accounting basics and follows the liability once the financial statements are drawn up. This basically means the apparent difference between cumulative assets and liabilities. If the assets exceed liabilities, then there is a positive owner’s equity and vice versa. Some of the items that feature in this section include the stock, capital accounts, and all retained earnings.
Other notable things to note about accounting basics are the book of accounts and the general ledger which is drawn when making entries of business transactions. The rules of accounting cut across the board, however, their variations in the way businesses and firms draw up their financial statements or report on the business activities of a certain fiscal year.
That about wraps it up for accounting basics, now take the time to search around the site to get a more in depth look at accounting starting with “What is Accounting?“