Tangible (fixed) vs. intangible (nonphysical) are two aspects in understanding assets. Three elements of costs involving assets are capital and revenue, expenditures, and depreciation.
Chart of Accounts
The Chart of Accounts is the index of a company's assets, liabilities, and equity. The journal is a business diary of transactions. Posting is putting all transactions into a ledger.
Fixed Asset Depreciation
Methods of fixed asset depreciation are straight line, units of production, declining balance, and sum of year digits. Determining cost and amortizing are elements of intangible depreciation.
GAAP and FASB
GAAP, the rulebook for accounting, lays out strict regulations for consistency. The FASB updates GAAP as needed. AICPA is a watchdog group for public accountants.
Income Statements
Income Statements report revenue and expenses. Balance Sheets report amount of assets, liabilities, and owner's equity. Owner's Equity and Statement of Cash Flow are two other reports.
Payroll Factors
Employee payroll involves both gross and net calculations. In addition, payroll calculations have both constants (fixed) and variables (changes) in each paycheck.
Rule of Debits and Credits
Debits and credits must always be equal. Accountants use a Trial Balance to prove this at the end of each period.
The Language of Accounting
Understanding the basics of accounting helps in all aspects of business. The four areas are collecting financial data of a business, recording, analyzing and then communicating it back to the business.
Three Types of Businesses
Sole Proprietorships make up most businesses in the United States. Partnerships are the second type. Corporations are larger and do more transactions, the heart of accounting.
Transactions and the Accounting Equation
Assets equal liabilities plus owner's equity. Assets are things owned, including profit. Liabilities are the bills owed. Equity is the owner's claim to the business assets, including the profits.
Two Types of Accountants
The CPA, or Certified Public Accountant, does income taxes and offers financial advice. The CMA, or Certified Management Accountant, works for one business or not-for-profit company.
