accounting basics

Sure! Here's a simple breakdown of accounting basics, ideal if you're just starting out or need a refresher:

📘 What is Accounting?

Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business or individual.

🧾 Key Accounting Concepts
1. The Accounting Equation

This is the foundation of accounting:

Assets = Liabilities + Owner’s Equity


Assets: What the business owns (cash, equipment, inventory).

Liabilities: What the business owes (loans, accounts payable).

Owner’s Equity: The owner’s stake in the business.

2. Double-Entry System

Every transaction affects at least two accounts.

Each entry has a debit and a credit.

Debits (Dr) increase assets and expenses; decrease liabilities and equity.

Credits (Cr) increase liabilities and revenue; decrease assets and expenses.

📂 Types of Accounts

There are five main types:

Type Examples Increases With
Assets Cash, Inventory, Equipment Debit
Liabilities Loans, Accounts Payable Credit
Equity Owner’s Capital, Retained Earnings Credit
Revenue Sales, Fees Earned Credit
Expenses Rent, Salaries, Utilities Debit
📅 Basic Financial Statements

Income Statement (Profit & Loss) – Shows revenues and expenses → net profit or loss.

Balance Sheet – Snapshot of assets, liabilities, and equity at a specific point.

Cash Flow Statement – Shows how cash moves in and out of the business.

🛠️ Common Accounting Terms
Term Meaning
Journal Where transactions are first recorded.
Ledger A record of all accounts.
Trial Balance A list of all balances to check accuracy.
Accrual Basis Revenues/expenses recorded when they occur, not when cash changes hands.
Depreciation Reduction in value of an asset over time.
📘 Example Entry

You buy equipment for $5,000 cash.

Debit Equipment (Asset) $5,000

Credit Cash (Asset) $5,000