Introduce
When we talk about accounting, we usually refer to financial accounting. Financial accounting is the process of identifying, recording, summarizing, analyzing and reporting a company’s financial transactions and reporting them in financial statements.
Base
Financial accounting assumes that a company’s resources (assets) equal its obligations to creditors and suppliers (liabilities) plus owners’ claims on the company’s net assets (equity). This is called the accounting equation.
Double entry
Financial accounting is based on the concept of double-entry bookkeeping, which means that each transaction affects at least two accounts and the sum of debits must equal the sum of credits. This ensures that the accounting equation always balances.
Account
There are six types of accounts in financial accounting: assets, liabilities, equity, revenue, expenses, and withdrawals (also called dividends). These accounts help visualize both sides of a transaction, with debits on the left and credits on the right.
Ledger
Financial data is stored in the general ledger. It contains a complete record of accounts and journal entries. This used to be a physical book, but now it’s often stored in accounting software as a central database.
Spreadsheet
The trial balance is an internal report that summarizes the final numbers for general ledger accounts. It helps in checking errors and is used in preparing financial statements.
Custom entries
Adjusting entries are journal entries that bring the books into line with the accrual accounting method. This method records revenue earned and expenses incurred, ensuring accurate profit calculations.
Annual Financial Statement
Financial reports are accounting reports that summarize a company’s activities during a specific period. The three main financial statements are the balance sheet, income statement, and cash flow statement.
Close the entrance
Closing entries are journal entries made to balance temporary accounts such as revenue, expenses, and dividends. These entries reset the balances in these accounts to zero in preparation for the next accounting period.
Billing cycle
The accounting cycle is the process of identifying, recording, summarizing, analyzing, and reporting a company’s financial transactions. This includes steps such as posting journal entries, preparing balances, adjusting entries, and posting closing entries.
Diploma
Financial accounting is an important aspect of every business. It helps track and report financial transactions, ensures the accuracy of financial reports, and provides insights into a company’s financial health and performance. By understanding the basics of financial accounting, companies can make informed decisions and navigate the complex world of finance.
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