When it is about accounting, there are many people who run away from it. Some people are not so good in mathematics due to which they find it hard to understand accounting. Mostly people who are good with the management and the theoretical parts, they are not really good with the accounting.
Well, everyone is able to understand the basic building blocks for accounting especially when you are operating your own business. It is necessary that you know the terms and know what comes under it so that you are able to keep track of all the transactions. You will be able to learn comprehensive but basic building blocks for accounting which will help you out.
Know the basic building blocks for accounting
Here are some of the terms which you need to understand and keep on your fingertips if you are working as an accountant somewhere or if you are operating your own business.
Income
The part of income relates to the profits which you get in the business. You have to mention the things which help you earn money from the business. Such as if you have given a portion of your office to someone for their business purpose and you are operating your business also, then you can mention it on the rent portion for the income part.
Expenses
Expenses are the deductions which get out of the business accounts. Any due payments which you have to pay or the rent for your business place if you are operating your business in different regions. You can surely have your own office but if you have it there temporary then you would have to pay the rent.
The rent which gets deduct from the account can be considered as the expense for the business.
Assets
Assets are the things which the business owns. These are the things for which the business is not liable to anyone. The things which you get by making a full payment and is for the use of the business.
It can be in the form of the basic computer which you operate to keep the records of the business. It is something which has the value and contributes in making the business successful. It is something which contains the value and you are able to attain money out of it. If incase the business goes in loss, you can use those assets to save it from any kind of danger. It can be in the form of equipment, furniture, building and more.
Liability
Whereas, if you talk about liabilities, it is something which is not your own and you have to make the payment in a form of owing it. The bills can be a great example of liability which you receive every month.
Once you pay it, the liability will be over otherwise you keep on getting the bill alerts. It can be the utility bills, payment to the suppliers, wages for employees and much more.
Owners’ Equity
This is the part where most of the people get stuck and do not understand. Others may seem easier but you have to be clear on this part. These are the assets which belong to the company solely.
They are for the purpose of the company usage and not related to liabilities or assets. When you deduct the assets and liabilities together then it is equal to the owners’ equity. That is the simple formula for this statement.
Debit & Credit
Once of the main part where people get confused are the debit and credit. Because many people do have accounts and they know that when the money gets deducted by the account, it is known as debit and when you take the loan then it is credit.
Well, other term could be that when you have the deposit into the account that is known as credit as well. Well, there are some of the situations where the credit can be more and some where the debit can be more so according to the increase and decrease matter you have to know the roles of assets and liabilities better.
If you do not understand anything within accounting then it is better that you get in touch with an accountant to learn the basics at least. They will help you operate the business wisely and no one will be able to create any discrepancy in the business as well.
