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Book keeping Tutorial

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accounting process and equation

accounting process and equation

Published in: Economy & Finance

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  • 1. 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 operations. 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 Accounting. Statement of Financial Condition This document shows the financial health of your business. It shows the following elements: - 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 produce revenue. - Net Income/Loss: Income increases your equity and Loss decreases it. Key Take-away: 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?