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56588374 Basics of Accounts

56588374 Basics of Accounts

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Published by: sbabu4u on Jun 12, 2012
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For personal use by the original purchaser only. Copyright © 2010 AccountingCoach.com.
 
Explanation:
Accounting Basics
 Visit our website online at:http://www.AccountingCoach.com Learn more about our
Master Accounting Download Package 
:http://www.AccountingCoach.com/ebook.html Learn more about our
Master Set of 80 Business Forms 
:http://www.AccountingCoach.com/business-forms.html Learn more about a career in accounting:http://www.AccountingCoach.com/careers/  
 
For personal use by the original purchaser only. Copyright © 2010 AccountingCoach.com.
1
 
Introduction to Accounting Basics
This explanation of accounting basics will introduce you to some basic accounting principles,accounting concepts, and accounting terminology. Once you become familiar with some ofthese terms and concepts, you will feel comfortable navigating through the explanations, drills,puzzles, and other features of AccountingCoach.com.Some of the basic accounting terms that you will learn include revenues, expenses, assets,liabilities, income statement, balance sheet, and statement of cash flows. You will becomefamiliar with accounting debits and credits as we show you how to record transactions. You willalso see why two basic accounting principles, the revenue recognition principle and thematching principle, assure that a company's income statement reports a company'sprofitability.In this explanation of accounting basics, and throughout the entire website,AccountingCoach.com will often omit some accounting details and complexities in order topresent clear and concise explanations. This means that you should always seek professionaladvice for your specific circumstances.
A Story for Relating to Accounting Basics
We will present the basics of accounting through a story of a person starting a new business.The person is Joe Perez—a savvy man who sees the need for a parcel delivery service in hiscommunity. Joe has researched his idea and has prepared a business plan that documentsthe viability of his new business.Joe has also met with an attorney to discuss the form of business he should use. Given hisspecific situation, they concluded that a corporation will be best. Joe decides that the name forhis corporation will be Direct Delivery, Inc. The attorney also advises Joe on the variouspermits and government identification numbers that will be needed for the new corporation.Joe is a hard worker and a smart man, but admits he is not comfortable with matters ofaccounting. He assumes he will use some accounting software, but wants to meet with aprofessional accountant before making his selection. He asks his banker to recommend aprofessional accountant who is also skilled in explaining accounting to someone without anaccounting background. Joe wants to understand the financial statements and wants to keepon top of his new business. His banker recommends Marilyn, an accountant who has helpedmany of the bank's small business customers.Read the topic
Accounting Careers 
to learn more about the roles of accountants and CPAs.
 
For personal use by the original purchaser only. Copyright © 2010 AccountingCoach.com.
2At his first meeting with Marilyn, Joe asks her for an overview of accounting, financialstatements, and the need for accounting software. Based on Joe's business plan, Marilyn seesthat there will likely be thousands of transactions each year. She states that accountingsoftware will allow for the electronic recording, storing, and retrieval of those manytransactions. Accounting software will permit Joe to generate the financial statements andother reports that he will need for running his business.Joe seems puzzled by the term transaction, so Marilyn gives him five examples of transactionsthat Direct Delivery, Inc. will need to record:1. Joe will no doubt start his business by putting some of his own personal money into it.In effect, he is buying shares of Direct Delivery's common stock.2. Direct Delivery will need to buy a sturdy, dependable delivery vehicle.3. The business will begin earning fees and billing clients for delivering their parcels.4. The business will be collecting the fees that were earned.5. The business will incur expenses in operating the business, such as a salary for Joe,expenses associated with the delivery vehicle, advertising, etc.With thousands of such transactions in a given year, Joe is smart to start using accountingsoftware right from the beginning. Accounting software will generate sales invoices andaccounting entries simultaneously, prepare statements for customers with no additional work,write checks, automatically update accounting records, etc.By getting into the habit of entering all of the day's business transactions into his computer,Joe will be rewarded with fast and easy access to the specific information he will need to makesound business decisions. Marilyn tells Joe that accounting's "transaction approach" is useful,reliable, and informative. She has worked with other small business owners who think it isenough to simply "know" their company made $30,000 during the year (based only on the factthat it owns $30,000 more than it did on January 1). Those are the people who start off on thewrong foot and end up in Marilyn's office looking for financial advice.If Joe enters all of Direct Delivery's transactions into his computer, good accounting softwarewill allow Joe to print out his financial statements with a click of a button. Next, Marilyn willexplain the content and purpose of the three main financial statements:1. Income Statement2. Balance Sheet3. Statement of Cash Flows

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