What are the basics of accounting in business?
- Business Accounting Basics 18 For expenses: Account to be debited Account to be credited Expense Bank or cash For income and other revenues: Account to be debited Account to be credited Bank or cash Income Example 2.10 On 9 March, the firm paid wages of £140 in cash. Wages £ 9 Mar Cash 140 Cash £ 9 Mar Wages 140 Example 2.11
What are the different types of accounts in accounting?
- DebitAccounting entry on the left-hand side of an account CreditAccounting entry on the right-hand side of an account AccountA place where a particular type of transaction is recorded LedgerA book containing double-entry accounts InventoryGoods purchased with the intention of being sold by the business for a profit
What are the three components of financial accounting?
- There are three terms which underpin much of the system of financial accounting: assets, liabilities and capital (or equity). Term Description AssetsAssets are the resources which are used by the business as part of the activities of the business (e.g. property, equipment and cash).
What are generally accepted accounting principles?
- GAAPGenerally Accepted Accounting Principles: the framework of account- ing regulations and standards in a particular country or common area of harmonised accounting systems (e.g. UK GAAP, US GAAP) General ledgerA book containing all accounts of the business that are not found in the sales or purchases ledgers
To make a chart of accounts, you'll need to first create account categories relevant to your business, and then assign a four-digit numbering system to the accounts you create. While making a chart of accounts can be time consuming, it's an important tool for understanding the financial health of your business.