Words that you should know in accounting

• Accounting = The process of identifying, recording, and communicating the economic events of an organization to interested users of the information.
• Assets = Resources owned by a business.
• Auditing = The examination of financial statements by a certified public accountant in order to express an opinion as to the fairness of presentation.
• Basic accounting equation = Assets are all the liabilities plus owner's equity.
• Bookkeeping = A part of accounting that involves only the recording of economic events.
• Corporation = A business organized as a separate legal entity under state corporation law having ownership divided into transferable shares of stock.
• Cost principle = An accounting principle that states that assets should be recorded at their cost.
• Drawings = Withdrawal of cash or other assets from an unincorporated business for the personal use of the owner/ owners.
• Economic entity assumption = An assumption that economic events can be identified with a particular unit of accountability.
• Ethics = The standard conduct by which one's actions are judged as right or wrong, honest or dishonest, fair or not fair.
• Expenses = The cost of assets consumed or services used in the process of earning revenue.
• FASB = A private organization that established generally accepeted accounting principles. ( Financial Accounting Standard Board ).
• GAAP = A common set of standards that indicate how to report economic events. ( Generally Accepted Accounting Principles ).
• Investment by owner = The assets put into the business by the owner.
• Liabilities = Creditorship claims on total assets.
• Managing consulting = An area of public accounting involving financial planning and control and the development of accounting and computer system.
• Monetary unit consumption = An consumption stating that only transaction data that can be expressed in terms of money be included in the accounting records of the economic entity.
• Net income = The amount by which revenues exceed expenses.
• Owner's equity = The ownership claim on total assets.
• Partnership = An association of two/ more persons to carry on as co-owners of a business for profit
• Private accounting = An area of accounting within a company that involves such activities as cost accounting, budgeting, and accounting information systems.
• Proprietorship = A business owned by one person
• Public accounting = An area of accounting in which the accountant offers expert service to the general public.
• Revenues = The gross increase in owner's equity resulting from business activities entered into for the purpose of earning income.
• Taxation = An area of public accounting involving tax advice, tax planning, and preparing tax returns.

The summarized accounting data

There are four financial statements that could be made after transactions are identified, recorded, and summarized, those are: an income statement, an owner's equity statement, a balance sheet, and a statement of cash flow.

An income statement presents the revenues and expenses and resulting net income or net loss of company for a spesific period of time.

A balance sheet presents the assets, liabilities, and owner's equity of a company at a spesific date.

An owner's equity statement summarizes the changes in owner's equity for a spesific period of time.

A statement of cash flow summarizes information concerning the cash inflows and outflows for a pesific period of time.

Additionally, every set of financial statements is accompanied by explanationary notes and supporting schedules that are an integral part of the statements. Be sure to carefully examine the format and content of each statement.

The effect of business transactions on the basic accounting equation

Each business transaction must have a dual effect on the accounting equation. For example, if an individual asset is increased, there must be a corresponding of decrease in another asset, or increase in a specific liability, or increase in owner's equity.

Example:

Investment by owner are the assets put into the business by the owner. These investment in the business increase owner's equity.

Withdrawal of cash or other assets by owner could be recorded as a direct decrease of owner's equity (decrease total owner's equity). However, it is generally considered preferable to use a separate classification referred to as drawings to determine the total withdrawals for the accounting period.

Basic Accounting Equition

The basic accounting equation is:

Assets = Liabilities + Owner's Equity

Assets are resources owned by a business.

The common characteristic possessed by all assets is the capacity to provide future services or benefits to the entities that use them. In a business enterprise, that future economic benefit eventually results in cash inflows to the enterprise.

Liabilities are creditorship claims on total assets (existing debts and/or obligation).

In the event of nonpayment, creditors may legally force the liquidation of a business. In that case, the law requires that creditors claims be paid before ownership claims. Most claims of creditors attach to total enterprise assets rather than to the specific assets provided by the creditor.

Owner's Equity is the ownership claim on total assets.

The assets of a business are suplied or claimed by either creditors or owners. To determine what belongs to owners, we therefore subtract creditors' claims (the liabilities) from assets. The remainder (owner's equity) is the owner's claim on the assets of the business.

The users and uses of Accounting

The major users of accounting are business team management, investors/ owners, creditors (suppliers/ bankers).

Business team management uses accounting information in planning, controlling, and evaluating business operation.

Investors/ Owners use accounting information in judging the wisdom of buying, holding, or selling their financial interests.

Creditors (suppliers/ bankers) use accounting information businesses to evaluate the risks of granting credit or lending money to those businesses.

The users with an indirect interest of accounting are taxing authorities, regulatory agencies, customers, labor unions, and economic planners.

Accounting Knowledge

Accounting is important for all the economic events (transactions), because of that you should know about accounting if you involved in some economic event. Accounting is the process of identifying the economic events of some business or nonbusiness. Accounting is also the process of recording the economic events of some business or nonbusiness. The last principle you should know about Accounting is the process of communicating the economic events of some business or nonbusiness to interested users of the information.

The process of identifying involves selecting economic events that are considered evidence of economic activity relevant to a particular business or nonbusiness.

The process of recording  involves keeping a chronological diary of economic events in an orderly and systematic manner.

The process of communicating involves preparing and distributing financial statements (accounting reports).

That's all for the first knowledge of accounting from me.