Financial Accounting Basic Information

While going to school at West Chester University I took a class that was accounting 201

. After taking this class I learned the basis of financial accounting of the world of today. This class teacher you the concepts of asset's equal liabilities plus owner's equity. Going into this class I had no idea what accounting really was or how exactly it worked. I just knew the key idea that every business needs an accountant and that they are not cheap to have by any means and any real business person should have a good back view on how financial accounting really works. The main idea in this article I will discuss the difference of debits and credits. I will go over how they incorporate with liabilities, owner's equity and assets. Finally I will teach you about what is exactly going on and what goes under each liability, owner's equity and assets.

The first thing that I found the best to get a grasp on was how the debits and credits actually worked. First you will be thinking well that's like putting things on debit that you are going to buy or credit but this is totally different terminology. An example of how a debit works is while receiving an asset you will debit the account, for instance when someone gives me money for one of my services you receive cash which would be the debit. When taking away from an asset account you will be crediting the account, for an example of this you could see that I bought something from using cash like office equipment. You can see that the office equipment would be debited since you are receiving this but your cash will be credited because you are removing this from your assets and will make this a credit. The normal equation of the debits and credits are that the assets are increase under debit and decrease under credit. For the Liability and Owners equity their debits decrease and their credits will be increased. Under the expenses and losses your debits will be an increase and that your credits will be a decrease. Whereas for the Revenue and under income you will have an increase under your debits will have a decrease and that your credits will have an increase.

Next I will discuss with you the basic accounts in each of the Assets Liabilities and Owner's Equity. Assets can be broken down into current assets and fixed assets. Some current assets would include cash, accounts receivable, investment accounts. Under fixed assets would be land, buildings, furniture, equipment, vehicles, and other items that can be obtained. These items tend to depreciate over time. As an example of this would be the furniture has been worn down from years and the value will lower. After the assets then you can see the accounts for the liabilities. There are short term liabilities which would consist of accounts payable, wages payable, taxes payable, and dividends. Long term liabilities would be loans such as loans for land, buildings and vehicles. Under Owner's equity there is the stocks and the retained earnings. The retained earnings is the beginning retained earnings plus the revenue minus the expense and you get the ending retained earnings. So the basic concept to grasp over this whole article is the fact that assets are what you posses or own. The liability is what you owe or do not require yet. Plus the Owner's equity which consists of what you owe to the bank under stocks and your retained earnings. This is the main concepts that you should learn prior to taking the financial accounting class and you will get a better grasp of the class when you take it.

Financial Accounting Basic Information

By: Thomas

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