Accounting Quick & Simple: A Non-Accountants Guide to Basic Accounting
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The books with the best review rank and the most reviews made our Top This basic accounting best-seller serves as a great introduction for non-financial managers, stock-market investors, undergraduate and MBA students, and more. Without dumbing down the concepts, Thomas R. By balancing clear explanations of these three accounting basics with necessary accounting principles, Ittelson crafts a book designed for small businesses and non-accountants. Inasmuch, Financial Statements gives readers from every walk of life a great introduction to the 3 core financial statements and how they relate to one another.
For the non-accountant, this book is a must-read to improve financial literacy. In a world where even non-financial jobs require familiarity with certain financial concepts, Accounting Game by Darrell Mullis and Judith Orloff is a must read, especially for small business owners. Using the sustained example of a lemonade stand, Mullis and Orloff explain the basics of finances, including common financial jargon and documents.
Through running their own lemonade stand, readers learn basic financial literacy, including concepts like assets, liabilities, earnings, inventory, and notes payable. Designed for someone without any accounting background, Accounting Game reviews three core financial statements by gradually building on knowledge established from previous chapters. In the end, this accounting book is one every small business owner needs on their shelf. For anyone without a finance background and in need of accounting basics, this book is a must-read.
Understand dual-entry bookkeeping. Accountants make two or more entries for each transaction recorded by the business. These can be thought of as an increase in one or more accounts and an identical decrease in one or more other accounts. For example, a payment made for a sale previously made on credit would result in an increase in the cash account and a decrease in Accounts Receivable money owed to the business by customers who have purchased items on credit but not yet paid.
These entries would be made for the same amount the amount of the sale. Practice recording debits and credits. When dual-entry records are made, they are done in the form of debits and credits. These represent whether or not certain accounts are increased or decreased by a transaction.
Using them is relatively if you remember two things: Debit means the record goes in the left side of the t-account and credit means you should use the right side. This refers to a standard t-account journal in which records are made on either side of the vertical portion of the "T". This is the accounting equation.
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Memorize this above all else. It works as a sort of guide to debits and credits. For the right side, the opposite is true. This means that when asset accounts, like cash, are debited, they are increased. However, when liability accounts, like accounts payable, are debited, they decrease. Set up and maintain a general ledger. The general ledger is where the dual-entry transaction are recorded. Each individual record the various debits and credits in the transaction is made in the relevant account within the ledger. So, for a cash bill payment, an entry would be made in the cash account and another, separate entry made in the accrued expenses account.
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This process is greatly simplified when you use accounting software, but can also be done by hand relatively simply. Distinguish between cash and accruals. A cash transaction is the type of trade that occurs when a customer buys a pack of gum from the store and you receive the payment on the spot, and then give them the gum in exchange. Accruals, on the other hand, take into account things like credit, invoices, and billing, rather than direct payment at the time of business, as well intangible assets like goodwill.
Know how financial statements are created. Financial statements reflect the current financial health of the business and its financial performance over the last accounting period. The financial statements are created from the information contained within the general ledger. At the end of the accounting period, each account is totaled up to create a trial balance. The total debits and credits in all accounts should be equal. If they are not, the accountant must re-check the balances of each account and make adjustments or corrections where necessary. When the accounts are adjusted and correct, the accountant can enter summaries of the information contained in them into the financial statements.
Learn how to create an income statement. An income statement is the most basic principle of accounting. It records a company's profit margins over a specified duration of time, ranging anywhere from one week to one year. The income statement is determined by two factors: the business's revenues and its expenses. Revenue may include cash transactions as well as accruals.
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If accruals are included in the income statement, then the revenue of a given week or month takes into account the invoices and bills that were sent out during that time, even if the money will not be collected until the next income statement's period. Income statements are therefore intended to show how profitable a business was during that recorded period of time, not necessarily how much money a business took in during that time.
Much like revenues, expenses are reported during the period of time in which those expenses were incurred, not necessarily when the company paid for those expenses. In a successful business this should more or less result in a cause-and-effect relationship, where, for example, increased sales will increase the company's revenue while also resulting in business-related expenses: an increased need to buy more supplies for the store and an increase in expenses for sales commissions, if applicable. Create a balance sheet. Unlike an income statement, which deals with a period of time, a balance sheet can be thought of as essentially a snapshot of your business at one particular point in time.
In other words, what you have is always determined by what you owe plus what is currently yours to keep.
It may be helpful to think of assets as all of the resources a company has at its disposal: namely, the vehicles, cash, supplies, and equipment a company owns at that given point in time. Liabilities are any amount that is owed to others at the time of the balance sheet's creation.
Liabilities can include loans that must be paid back, any money that is owed for supplies given on credit, and any wages owed to employees that have not yet been paid. Equity is sometimes thought of as the "book value" of a company or business.
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Generate a statement of cash flows. Essentially, a cash flows statement specifies how cash has been generated and used by a business, as well as that business' investing and financing activities, over a specified period of time. The statement of cash flows is mostly derived from a business's balance sheets and income statements for that same time period. Follow the generally accepted accounting principles GAAP. The basic principles that guide accounting practices rely on a set of principles and assumptions designed to guarantee transparency and integrity in all business transactions.
- Basic accounting terms, acronyms, abbreviations and concepts to remember.
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The Economic Entity Assumption is the requirement that an accountant working for a sole proprietorship a business where a single person owns the company must maintain a separate ledger for business transactions that does not include the business owner's personal expenses or transactions.
These intervals are typically relatively short: at the very least an annual report is made, though reports are often made at weekly intervals in many companies. The report must also specify when that time interval began and ended. In other words, it's not enough to include the date of the report; an accountant must clarify in that report whether the report corresponds to one week, one month, one financial quarter, or one year.
This information must be disclosed either in the body of a financial statement, or in the notes at the end of that statement. In other words, if an accountant believes the company will go bankrupt in the foreseeable future, he is obligated to disclose that information to investors and any other interested parties. This does not mean an accountant may report inaccurately; rather, it addresses an accountant's decision to round to the nearest dollar, for example, in reporting on a business's financial transactions.
Accounting for Non-Accountants, 3E: The Fast and Easy Way to Learn the Basics