5 Vital Financial Concepts helpful in Accounting Management
If you are going to pursue your career in management, finance, economics, or accounting, or any field related to money transactions or business, then it is a dire need to learn the basic fundamentals of accounting so that you can make the right decisions. Wanted to know what are those financial concepts are essential to learning? Read this blog and get all your answers. Moreover, you can also hire financial accounting assignment help without any difficulties.
Basic Principles of Accounting Significant for Every Business Owner
Accounting Equation: The basic accounting equation which is used for accounting and double-entry bookkeeping is assets = liabilities + shareholders’ equity. There are basically three main elements of this formula,
- Assets: It includes accounts receivable, cash money, inventory
- Liabilities: It includes outstanding loans as well as accounts that are payable
- Shareholders’ Equity: It involves funds that are received from the investors and earnings which have not yet been disbursed to the investors of the company.
Debits vs Credits: Those businesses which work on a double-entry accounting system are counted as the most accurate form of business. The main idea of the system is that “each financial transaction occurred in the business has equal and opposite effects which are shown in two or more different accounts of the business”. Transactions are basically recorded as either credits or debits, both two are offset to each other. A credit entry either strengthens the equity account or liability or decreases the expense account or asset. However, a debit can either decrease equity account or liability or enhance expense account or asset.
GAAP: GAAP or Generally accepted accounting principles is a basic set of accounting principles that are used to put financial statements together. The main idea of GAAP is to have a uniform, recognized standards that companies basically adhere to, irrespective of the size and industry. With the imposition of GAAP, companies get a benefit of a certain level while reviewing reports of finance.
Financial Statements: All the financial activities of the company are stated in the financial statements. It highlights the ability of the company whether it is able to generate cash or repay the loans or debts. There are three key reports that are mentioned in financial statements:
- Balance Sheet: It shows the liabilities, assets, shareholder’s equity in a given span of time.
- Income Statement: This statement helps to review the revenues, gains, expenses, losses of the company over a given time period.
- Cash Flow Statement: Whatever the cash flow or activities related to money comes under the cash flow statement. This helps to understand the overall transactions done in the company. You can take Help with Assignment Online if you know its deep-rooted concepts.
Cash Vs Accrual Method: Companies basically track the expenses and income on the basis of cash and accrual. With the cash method, all the revenues that are collected from the customers are mentioned and when cash is paid out, then expenses are recorded. Whereas in the accrual method, when revenue is earned, it is recorded, similarly when the expenses are incurred, they are recorded as well regardless of the cash paid or received.
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