The Basic Accounting Terms

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   Accounting

 Accounting can be simply defined as, accounting is the art of classifying, summarizing, interpreting the Financial information of the business. there are two types of accounting one is Financial Accounting and the second is Managerial Accounting. 

  Financial Accounting

 Financial accounting can be simply defined as it is the process of recording the transactions through the financial statements (Balance sheet, Statement Cash Flows, Income Statement, statement of shareholders equity) is Financial Accounting. 

  Managerial Accounting 

Managerial accounting can be simply defined as it is the process of analyzing the data to report the management for making effective decisions for the best interest of their organization. 

The Base of Financial Accounting

Base financial accounting is an accounting equation. The accounting equation is Assets=liabilities+ Owners equity. Or owner’s equity = Assets-liabilities or The Liabilities = assets – owners’ equity.

  Assets

The assets can be simply defined as wealth and resources of the firms are known as assets such as Cash, land, building, inventory, Vehicles, etc. are the assets of the organization. There are two types of assets one is current assets and other fixed assets or non-current assets. The current assets can be defined as they are easily converted into cash or cash. The fixed assets can be defined as they are not easily convertible into cash, they are usually used for the long term such as land and building.

Liabilities.

The amount payable to any organization or any individual is known as the liabilities. The liabilities are also known as debt, payable, credit, obligation, loan, payable, Etc. There are two types of Liabilities one is short-term liabilities and the other is a long-term liability. The short-term liability is payable within one financial year ad long-term liability is payable in multiple years.

Owners Equity

The owners’ equity can be simply defined as the amount of Investment by the owner in business is known as the owners’ equity. The terms drawings are used when the owner draw money from his business.

Bookkeeping

The recording of business transactions is known as bookkeeping.

Journal

The Journal is known as the prime book of accounting, the first initial recording of any financial transaction is recorded in this book.

General ledger 

 It is the book of accounts in which, the initially recorded transactions in Journal are posted in Ledger, all transactions are booked as per the given chart of accounts or subheads. 

  Trial Balance

The trial balance can be simply defined as it is the summary of the ledger balances, this tool is used for checking the accuracy of ledger balances.  

Debit and Credit

In the double-entry bookkeeping system, the very transaction has a double effect, one entry will be on the debit side and the other entry will be on the credit side. The normal effects of the receipts of businesses are recorded on the debit side and the normal effects of payments are recorded on the credit side of the books of the accounts.

Pre-Paid Rent

The rent paid in advance is an asset until it is not utilized it is recorded as an asset, after utilizing rent it is recorded as an expense.

Unearned Revenue

Any receipts of the amount in advance from the customers is a liability until the goods or services are provided to him. After completion of service or goods, it will be recorded as revenue.

  

 

 


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