Understanding About Accounting Basics

So What’s Accounting About, Anyway?
To become blunt, accounting is about tracking stuff (yes, there’s a lot more to it, but hang with me). 

What type of stuff can we track? 

• Assets: “Stuff” inside the company 
• Liabilities: “Stuff” that belongs to others 
• Owners Equity (aka Capital): “Stuff” that belongs to the owners

Simple enough. Now how are these related?

Assets = Liabilities + Owners Equity

In layman’s terms, everything the company has belongs to the owners or someone else. Think of the equation like this:

• assets = liabilities + owners equity 
• stuff the company has = other people’s stuff + owner’s stuff

This formula (also named ALOE) could look more strange initially. So why do we add liabilities? Mainly because we’re seeking in the point of view with the company business, and not the shareholders. In the event the business has anything, it could be borrowed to somebody else

In the owner’s point of view, owners equity = assets - liabilities. This equation seems much more organic, but specifically we aren't keen on the owner’s point of view. About Accounting basics knowing in regards of the business enterpris.

About Accounting Basics Terminology

Assets is the group of things that you own. Your assets could include a truck, cash, a house, stocks, or anything else that has convertible value. Convertible value means that theoretically you could sell the item for cash.
Liabilities is the group of things on which you borrowed money. Your liabilities could include a car/truck loan, a student loan, a mortgage, your investment margin account, or anything else which you must pay back at some time.

Income could be the payment you receive for the time, services that you provided / the usage of your funds. Any time you received a pay check, one example is, that check is for payment for the labor you offered to an employer of revenue may include things like commissions, tips,  income from stocks,  interest income from bank & dividend. Income will capable raise its the value of the Assets and as a result your Equity.

Expenses refer to money you spend to buy goods or services offered by an individual. Examples of these are a meal at the restaurant, rental, groceries, gas for automobile, or even tickets to view a play. Expenses will lower your Equity. Spending for the expense promptly, you will lower your asset, wherein you spend for the expense on credit you raise your Liabilities.

See also:  About Accounting