Accounting Basics

Accounting Basics

Accounting refers to the systematic process of categorizing, recording, classifying, calculating, and summarizing financial data. An accountant is responsible for preparing reports, which include cash flows and income statements. These reports are called accounts-in-residence or balance sheets. The primary task of an accountant is to prepare the financial reports. He must correct any errors in the accounts-in-residence. An accountant’s responsibilities include the preparation of estimates and the determination of the classification of financial transactions.

There are many accounting terms that you need to familiarize yourself with, such as accounting equation, cash flow analysis, and internal/external reporting techniques. An accounting equation is a mathematical formula used to determine the condition of an entity. In other words, it is the composition of financial records, liabilities, assets, revenues and shareholders’s equity.

Cash flow analysis is a method of determining the financial condition of an entity by using financial records that show the movement of funds within an entity. The most common example of cash flow analysis is the retail store chain shown in Fig. 5. This chain generates sales orders, purchases from suppliers, disbursals to consumers, and finally disbursements to stockholders. Each business cycle is represented by one accounting equation or model.

Another way to think of an accounting system is as a system that integrates financial transactions with the day-to-day activities of an organization. Accounting systems are usually designed so that the transactions are recorded in the financial records of an enterprise. The accounting system then produces a report, which summarizes the activities during a period. Accounting information can be classified into two forms: financial records, which include the revenue and expenses of the enterprise; and non-financial records, which refer to documents that do not have a relationship to the financial transactions of the enterprise. Examples of non-financial records are vouchers, checks, phone bills and accounts payable. Financial records, on the other hand, include loans, assets, revenues and expenses, and purchases, debts and repossessions.

Accounting records are used to create reports that represent the financial transactions of the enterprise. Reports are prepared for management, owners, creditors, employees and other interested parties. The reports are presented to stakeholders so that they can make informed decisions about the financing of the enterprise, the allocation of resources and so on. Accounting reports are also used for tax purposes and to track and monitor the health of an enterprise’s cash flow.

Cash flow is the difference between total revenue and the cost of operations, net income and sales. The difference between a company’s net profit and its total cash flow is its net worth. A company’s balance sheet, also known as the statement of cash flows, presents the business’s debt and assets in a separated category, while balancing the operating capital. The accounts receivable and accounts payable categories contain the collections and payments for customer accounts receivable and customer accounts payable, respectively. Net working capital represents the difference between the current assets and current liabilities, less the net assets of the enterprise. All of these categories are reflected in an enterprise’s balance sheet.