Accounting, accountant, debits and credits, accounting equation, internal users of accounting, external user of accounting, assets, liabilities, equity, T accounts, natural balance, accounting cycle. Accounting principles, Jose Cintron, MBA, Advance Business Consulting, Jose Cintron, mba4help.com
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Accounting
Accounting is the art of recording, summarizing, reporting, and
analyzing financial transactions.
Accountancy is the process of communicating financial information
about a business entity to users such as shareholders, owners, partners
and managers. The communication is generally in the form of financial
statements that show in money terms the economic resources under the
control of management; the art lies in selecting the information that is
relevant to the user. (wiki)
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Accountants
Accountants use the work done by bookkeepers to produce and analyze
financial reports. Although accounting follows the same principles and
rules as bookkeeping, an accountant can design a system that will
capture all of the details necessary to satisfy the needs of the
business managerial, financial reporting, projection, analysis, and tax
reporting. A good accountant will create a system of financial reporting
that gives a complete picture of a business. (wiki)
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Accrual vs. Cash
In accrual basis accounting, income is reported in the fiscal period it is
earned, regardless of when it is received, and expenses are deducted in
the fiscal period they are incurred, whether they are paid or not. In other
words, using accrual basis accounting, you record both revenues and
expenses when they occur. Use for all medium and larges businesses.
In cash basis accounting, revenues are recorded when cash is actually
received and expenses are recorded when they are actually paid (no
matter when they were actually invoiced). Mostly use by small
businesses like mom and dad.
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Accounting equation
The equation’s three parts are explained as follows:
Assets = what the business has or owns (equipment, supplies, cash,
accounts receivable)
Liabilities = what the business owes outsiders (bank loan, accounts
payable)
Owner’s Equity = what the owner owns (investment and business
profit)
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Accounting equation
Accounting is built upon the fundamental accounting equation:
Assets = Liabilities + Owner's Equity
This equation must remain in balance and for that reason our modern
accounting system is called a dual-entry system. This means that every
transaction that is recorded in accounting records must have at least two
entries
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Accounting equation
Accounting is built upon the fundamental accounting equation:
Assets = Liabilities + Owner's Equity
This equation must remain in balance and for that reason our modern
accounting system is called a dual-entry system. This means that every
transaction that is recorded in accounting records must have at least two
entries.
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Credits and Debits Rules
Assets and Expenses
An increase is recorded as debit (left side)
A decrease is recorded as credit (right side)
Liabilities, Equities and Revenues
A decrease is recorded as debit (left side)
An increase is recorded as credit (right side)
Contra-accounts
Contra-accounts behave exactly in opposite way to the respective normal
accounts.
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Debits and Credits
Increases with Debits
The Debit side of an account
represents increases in asset
accounts, expense accounts, and
Drawing.
Increases with Credits
The Credit side of an account
represents increases in liability
accounts, revenue accounts,
and Capital.
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Debits and Credits
Decreases with Debits
Since credits represent increases in
liability accounts, revenue accounts, and
Capital, then debits must represent
decreases in these accounts.
Increases with Credits
The Credit side of an account represents
increases in liability accounts, revenue
accounts, and Capital.
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Natural Balance
Assets, Liabilities, Equities, Revenues, or Expenses. These account
types all have natural balances that are debits or credits.
The natural balances of each account type are:
Assets: Debit
Liabilities: Credit
Equities: Credit
Revenues: Credit
Expenses: Debit