Accounting is an essential business function that involves recording transactions, summarizing data, and then reporting and analyzing the results on a periodic basis. Even though using bookkeeping software will help with the daily use of accounting functions for a small business, it’s still important to have an understanding of the basic functions of accounting.
This introduction of accounting basics will make you familiar with some basic accounting principles, accounting concepts, and accounting terminology. Some of the basic accounting terms that you will learn include revenues, expenses, assets, liabilities, income statement, balance sheet, and statement of cash flows. You will become familiar with accounting debits and credits as we show you how to record transactions. You will also see why two basic accounting principles, the revenue recognition principle and the matching principle, assure that a company's income statement reports a company's profitability.
All accounting entries in the books of account for a business have a relationship based on the ”accounting equation”: Assets = Liabilities + Owner’s equity. Thus the Basic Accounting Equation is the key equation of the subject. And in order to fully understand this key equation, we will be taking a detailed look at each of its three components:
- The Owners Equity.
Note in this introduction of accounting basics, and throughout the entire website, some accounting details and complexities will be often omitted in order to present clear and concise explanations. This means that you should always seek professional advice for your specific circumstances.