1. Basic Accounting Terms
Around the world, organizations from large to small need a way to organize their
incomes and control their outcomes in order to be successful. Machines can’t do all that
work, even if we wanted them to, so it’s important to learn what can we do in these economic
situations, as well as learning something that can improve our daily finances.
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It’s easy to get lost in accounting books when you’re a beginner
Learning the language that provides information about the financial position of an
organization is the first step. That language is called accounting, which has many ways and
names. In the United States, the accounting world has its own terms called GAAP
(pronounced *GAP*), the Generally Accepted Accounting Principles.
Given the similarity of the information, we can break it into categories: Operating Information
that we use on a day to day basis, the one that needs to be tracked. Financial Accounting
Information which banks, shareholders, creditors, the government, etc. use to organize their
own information and Managerial Accounting Information used for planning, implementation
and control of the business.
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The organization of the information is the most important thing in any job
When we talk about Operating Information, we are referring to concepts such as the Flow
Report, a statement that shows the flow of financial information over a period of time. In this
report, is necessary the use of four basic elements: Income, Assets, Liabilities and
Expenses. The income and the assets have a close relationship, both are the positive
balance of the accounting equation. The income is the money getting in to the organization,
while the assets are everything that the company owns and adds a positive value to it. The
liabilities and expenses are the negative balance in the company’s accounting equation,
liabilities represent what you owe and restvalue from the assets,in one word they are debts.
An expense is any payment the companymakes, like a bill, supplies, the employees’ wages,
etc. Some companies use the much necessary Balance Sheet, which they can build it on
their own or fill on a format and register their incomes and expenses.
Before, we’ve used a term that has its own development: The accounting equation.
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The whole process of recollecting the operation information is to solve this equation. No
company nor organization is going to do well if it doesn’t have equity so, the job of the
accountant is to keep the information neat and inform the company’s owner about the status
of the financial decisions.
The equity of the company is the result of resting the liabilities to the assets. If someone
earns 300$ a week and spends 200$, his equity is 100$.
When it comes to Financial Accounting Information, the organizations need a recollection of
the data they manage on a daily basis, all their operating information. This data goes mostly

2. to other organizations like banks, shareholders or the government so the language must be
similarto what we have learned before. The Books,different of the ones we read for pleasure
or use to do homework, have all the information registered throughout the time the company
has been in business.
Also, an Income Statement show the progress of the organization’s revenues and expenses
or the money going in and the money going out. These generally are done to show a specific
period of time, always longer than a day. The Income Statement is similar to the Statement
of Cash Flow but not to be confused, because stating the cash flow is talking about the
money going in versus the Income Statement that combines the revenues and the
expenses.
A Bank Reconciliation is a concept that can be put in the categories of the kind of information
shared with other organizations and the one being kept and controlled in the company. When
the bank supplies the information of the company’s account, the bank conciliates it with the
one they controlled over the period of time stipulated.
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Money doesn’t grow on trees but it can be a seed that grows into wellness
All Managerial Accounting Information can be gathered from all the processes done before
in every step of the accounts. It is not given to anyone but for the company to hold and serve
itself for budget planning, to analyze how much something will cost to the organization and
to control all the work that is being done financially.
If the company wants to keep records for future comparisons, all this gathered information
can be put in use. Managers control their status of profits and the stability of the
organization’s accounts with all the information being kept in the books, the banks, the
stocks and what their status with the government’s fiscal institutions is.
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Accounting can serve our daily personal needs too
Outside this information, there are concepts that scape any category and need to be handled
perfectly. For example, a business or a firm is called an Entity. All companies, partnerships
and even a sole trader are given this sort of non-person entity status. This entity is a
separated thing from the owners, it means that a sole person can be an accounting entity
but an entity can’t be a person, it’s always an un-personal firm.
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The payment of bills is a good way to practice personal accounting
The American Accounting Association defines Accounting as the process of identifying,
measuring and communicating information to permit judgment and decision by users of
accounts. Handling the accounts information and knowing the basics of the accounting
language sets the ground for a neat, clear and uniform way to do the job set for accountants
and can also improve our way to handle personal financial information.