Crash course for Non-Accountants: Accounting Basics
Did you just started a business and wants to know some accounting basics? What are the
basics that you should know?
Two things, first the Statement of Financial Condition that shows the financial standing of
the business and the Statement of Comprehensive Income, which shows the results of the
Business owners should know some accounting basics because this will help them in their
decision-making. Decisions based on facts reduce the risk of the business going to the
wrong direction or falling to a stressful situation. So, here are the basic elements of
Statement of Financial Condition
This document shows the financial health of your business. It shows the following
- Assets: these are resources owned by your company, such as, cash, receivables,
inventory, land, building, equipment, machinery and so on.
- Liabilities: simply these are your obligations that you owe to other businesses or
individuals. This includes your loans payable, accounts payable, notes payable,
government expenses, etc.
- Owner’s Equity: these are your interest in or claim to the assets of your business.
Just look at the difference between the amount of assets and amount of liabilities.
Statement of Comprehensive Income
Here’s what includes on this statement:
- Revenues: think of this as an inflow of assets from sale of goods and services
- Expenses: this is the outflow of assets, like cash spent or liability incurred in order to
- Net Income/Loss: Income increases your equity and Loss decreases it.
The Accounting Basics
- Statement of Financial Condition shows the financial condition of your business. (assets,
liabilities, owner’s equity)
- Statement of Comprehensive Income shows the results of operations. (revenues,
expenses, net income/loss)
Now your turn, what financial document that helps you in your day-to-day business
operation? And how do you use the two financial statements in your business decisions?