How to understand Basic Accounting for Beginners

Accounting is the way a company manages the company's financial position well. Due to the complexity inherent in accounting, most companies will employ an accountant in carrying out corporate accounting.

Regardless of who is managing business accounting, you should be able to read and prepare these basic documents, so that you will understand business performance and financial health - as a result, you will have more control over the company and business decisions.


How to understand Basic Accounting for Beginners

Income statement

A report that shows the profitability of the company and tells you how much money the business made or lost in a period.

In other words, a report that is a brief overview of the income and expenses of a business over a certain period of time (such as quarterly, monthly, or annually).

Balance sheet

A balance sheet is the financial condition of a business at one particular point. The balance sheet will also show the business's retained earnings, which is the amount of profit that has been reinvested in the business (not distributed to shareholders).

Cash flow statement

Reports that analyze a business's operating, financing, and investing activities to show how and where businesses receive and spend money.

Bank Reconciliation

Bank reconciliation matches cash disbursements to the overall business bank statement and helps maintain consistency of your business records. In other words, the process of reconciling business accounting balances to balances in bank accounts.

Accounts Payable & Accounts Receivable

Accounts receivable is money that people have to pay for goods and services. Accounts receivable are considered assets on your balance sheet. Though debt is money that must be paid to others and is considered a liability on your balance sheet.


An asset is anything that belongs to the company - tangible and intangible. Your assets can include cash, equipment, property, copyrights, patents and trademarks.


Capital refers to the money that must be invested or spent to develop a business. Also referred to as "business capital", capital refers to accessible funds (ie money in a bank) and does not include assets or liabilities.

Cost of goods sold

The cost of goods sold (COGS) or cost of goods sold (COS) is the cost of producing your product or providing services to consumers.


Expenses include any purchases made or money spent in an effort to generate income. Expenses are also referred to as "costs".

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