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Accounting Basic - What is Accounting?

Accounting is the use of a system of terms, formulas, and other record-keeping devices that allows businesses to calculate, track, and compare their financial growth, or recession in some cases. The basic concept of accounting, the accounting equation, involves recording and calculating assets of the business, liabilities, and equity. That way, financial status of the business can be assessed and understood quickly and easily. Other more in-depth concepts involved in accounting include handling investments, payroll, and auditing for the business.

Accounting is an educational discipline

It is taught in most colleges and universities and even in some technical school and high-school classes. There are several levels of degrees, specialties, and government-required licenses that someone can, or must, acquire within the discipline of accounting. Accounting has been taught and practiced as a discipline for centuries, and it continues to evolve as practitioners and researchers of accounting encounter ever-changing business, financial, and legal issues.

Depending on how a person intends to be involved in the accounting of a business, he or she should receive some sort of training in accounting practices. For example, accounting for big businesses may require whole departments or teams of professional accountants. On the other hand, someone simply wanting to keep track of the finances of his or her part-time business could handle the accounting with a basic knowledge of accounting concepts and formulas.

Accounting is a necessary part of any business success

Accounting gives business executives a way to evaluate the financial status of the business. With this financial information, executives can compare the financial status of the company to previous fiscal periods or years, set realistic goals for future fiscal periods or years, and make decisions that depend on or have an affect on the finances of the business.

Also, accounting reports inform business stock-holders and employees and the general public about the financial status of the business. In fact, all businesses are required by law to file some sort of accounting reports to the IRS and⁄or other government and financial entities. Auditing, internal or external, is an important function of business. Having sound and efficient accounting practices will ensure a successful audit.

Accounting Basic - What is the Accounting Cycle?

The accounting cycle is the series of steps that take place in order for financial statements to be accurately and uniformly produced at the end of an accounting period which is typically the length of one month, quarter of a year, or a whole year. Below is a list of the steps you would take to complete the accounting cycle, listed in the order that you would perform them, and with a brief summary of each step.

1. Identify the transaction. This transaction could be the revenue from the sale of a product or a payment to another business for services.

2. Analyze the transaction and how it related to the accounting balance sheet. For example, determine which accounts are affected by the transaction and how they are affected.

3. Record the transaction to a journal such as a sales journal. Journals are kept in chronological order and may be updated continuously, daily, or however often it is necessary.

4. Record the transaction to the general ledger. Take all of your entries and categorize them by the account.

5. Perform a trial balance. Debits and credits need to be equal at the end of an accounting cycle, so calculate the entries to ensure they match.

6. Prepare adjustments. Just because entries are recognized, does not mean the work has been performed. Revenue can only be recognized when the work has been completed, so adjust the entries accordingly.

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