This overview provides the fundamental principles of accounting that is made easy for fast understanding. This notes helped me a lot since accounting books are wordy and so I made this for fast memorization then you'll surely understand it the moment you read this.
Here’s a simple guide to basic accounting principles and terms:
1. The Accounting Equation:
This is the foundation of all accounting:
Assets = Liabilities + Equity
Assets: refers to what the business owns (e.g., cash, inventory, equipment).
Liabilities: refers as to what the business owes (e.g., loans, unpaid bills).
Equity: refers to the owner’s claim on the business (owner’s capital or retained earnings).
2. Types of Accounts:
Accounts are categorized into five main types:
1. Assets – these are the resources owned by the company
Examples: Cash, Equipment, Inventory
2. Liabilities – these are the obligations of the company
Examples: Loans Payable, Accounts Payable
3. Equity – refers to the owner’s interest in the company
Examples: Common Stock, Retained Earnings
4. Revenue – Income from business activities
Examples: Sales, Service Revenue
5. Expenses – Costs incurred to generate revenue
Examples: Rent, Salaries, Utilities
3. The Double-Entry System:
For every financial transaction, two accounts are affected:
Debits and Credits must always balance.
Debits increase assets and expenses, decrease liabilities and equity.
Credits decrease assets and expenses, increase liabilities and equity.
4. Financial Statements:
Key financial reports generated by the accounting process:
Income Statement: Shows profitability (Revenue – Expenses = Net Income).
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller iamrubymae12. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $17.99. You're not tied to anything after your purchase.