If the field of accounting, you need to learn the basics before you can move forward. Without these three concepts all things will be a blur. The fundamentals of accounting involve an understanding of the terms asset, liability, and equity.
First, let’s start with assets. Technically, when it comes to accounting basics, assets refer to anything that the business owns or the business has gained from its transactions. This includes cash as well as receivables both in accounts and notes.
Considering how assets are any resources, including those that are non-cash, that goes into the business like furniture and supplies, assets are always recorded on the debit side of ledgers and journals. This is the primary aspect when is comes to the fundamentals of accounting. It is important that you only include resources that have resulted from the operations of the business in this case.
But of course, the accounting fundamentals also take into consideration transactions where in monetary resources exit the business. In this case, you are dealing with what is referred to as a liability. When you have incurred a liability normally it is because you spent something in general. A Liability can also be referred to as your business’ payables may it be direct in account or as notes.
When is comes to the basics of accounting, all liabilities comprise the credit side of the journal or ledger. This is because any liability pertains to resources that are no longer part of your business. To match the value of the assets, the combined values of the liabilities and equity are necessary.
You may be wondering what equity is all about, well, when it comes to equity you are dealing with the resources that belong to the business owner that he has put into the business prior to the business starting. Usually, equity remains a constant when it comes to accounting basics. Together with the liabilities, they comprise the total credit value of the business balance sheet.
The balance sheet is always a good measure of how your business is doing. Here you will be able to discover whether or not you are earning or losing money. This is because you will be able to identify your income level through the equity aspect.
As you input the values into the balance sheet, it is important that you practice the utmost care. This is because one wrong amount will cause the entire thing to be in disarray. However, it can provide you with the best guide with regard to your business’ operations.
The fundamentals of accounting are easy to understand. It is just a matter of proper valuation and careful plotting. With some practice, it will be easy as pie.
Here are the accounting basics you should consider for your business. The key is to not leave anything out. And of course, always remember that assets equal liabilities plus equity.