Accounting is the process of reporting and recording business activities on a financial record. The resulting data is an important feedback loop for executive management, which enables them to view how well a company is performing relative to stated goals. The following discussion of accounting basics is necessary to provide you with a firm foundation from which to learn how an accounting method works and how it works in practice. It also serves as an opportunity for you to refine your understanding of this important subject matter.
Accounting Basics starts with an introduction to accounting methods generally referred to as the accounting report. This document presents the summary of an income statement. This is a two-page cover sheet that presents comprehensive information about a company’s financial position at the end of a reporting period. This includes revenue and expense items, a company ledger, balance sheet, and statement of cash flow (in the case of a corporation).
Accounting Basics further covers the more technical aspects of the accounting equation and the double-entry system. The basic equation and its corresponding formulas are described in detail in a financial report. You will learn how to interpret the spreadsheet that displays the results of an accounting equation as well as how to create a spreadsheet application to facilitate the analysis of financial statements.
Accounting Basics includes an examination of internal control measures. Specifically, you will learn what these are, how to implement them, and how they support the assurance of fair treatment and tax treatment of financial statements. You will examine the various types of internal controls and learn how they work together to ensure the protection of assets and liabilities. You will learn about the need for corporate governance, or management’s involvement, with these controls. Also discussed are some of the major ways in which public accountants have failed in their efforts to comply with these basic principles. As an example, one such failure involved using improper accounting software to make internal controls assessments.
Accounting Basics also includes the examination of various topics related to managing business expenses. The topics include identifying which expenses should be expected, the classification of daily, weekly, and monthly expenses, and the proper classification of inventory, capital assets, and liabilities. You will learn how to properly manage business expenses by identifying those that are necessary and those that are unnecessary. For example, you can’t run a business without inventory. However, you should only classify the inventory that is needed on a daily basis and those that aren’t.
The final chapter in Accounting Basics covers issues associated with using accounting software. You will learn about basic modules, including modules that manage payroll, accounting records, and modules that track customer accounts. Also described are five basic accounting principles, including the statement of purpose, the balance of payments, the income statement, the statement of cash flow, and the statement of operating expenses. The fifth principle taught in Accounting Basics is the principles of turnover and cost accounting.