Understanding Accounting
Through my years of higher education few classes have impacted my career as much as accounting has. Accounting not only opens up opportunities for students, but it helps them manage their lives outside of school. Many people hear of accounting and are automatically turned off because of its history of being challenging. At times accounting courses can be very challenging, but if the general idea and basics of accounting are understood, and mastered than the rest falls into place. In this article I will discuss the fundamentals of accounting, and how knowing this will ensure a greater understanding of accounting.
When beginning with accounting there are a few basics that need to be memorized in order to pursue a greater level of the subject. The first is that Assets = Liability + Owners Equity, and Revenue-Expenses will fall under the owners equity. The first equation is recorded on the Balance Sheet, while the second is under the Income Statement. The most important part of this is to make sure that the information that you are entering is in its correct spot so that they are balanced. If the accounts are unbalanced than either information was entered in the wrong area, or information is lost. It is crucial that this information is remained balanced.
Now that we know the basic accounting equations for our balance sheet and income statement we will move onto T-Accounts. The T-Account is a way in which transactions are recorded. The account is split into two, with the left side being your debits, and the right being your credits. Knowing whether the transaction is being recorded as a debit, or a credit will pose as the main problem to people new to using T-Accounts. When dealing with cash, a debit is when you are to receive cash, and a credit is when you are paying someone else with cash. An example being that if you were given $100 cash for a service performed, you would debit cash $100 and than you would credit $100 to revenue. It is very important like before that you keep these accounts balanced. There will be more than one T-Account usually at a time, and its important to keep these as organized as possible because these numbers will come into play at a later time.
Following the T-Accounts and the information that one has put into them its time to record them into a trial balance. The trial balance records all of the accounts and lists the accounts total debit or credit. It’s important that all the debits and credits for each account is totaled during the T-Account phase so that it becomes easier to put these into the trial balance. Like before, the debits must equal the credits or there is an error and one would need to go back and find what caused the unbalancing.
Understanding these basic accounting concepts will go a long way into someone’s business career as well as into their homes. Outside of school, accounting is something that everyone will need to use at one point in their life or another. These accounting applications will help develop the rest of the necessary skills that one would need in order to become an accountant for a business to pursue a career opportunity.