This article is for beginners to the profession of auditors who just started their long journey and is already struggling to understand the basics. The starting point of almost all accounting course is an explanation of double entry bookkeeping, the Hadith is the core of all further investigations. If you understand clearly fired as it was in the beginning, the impact of further training is zero.
I illustrates the basics of accounting in the simplest way would try to avoid from In The Beginning The use of works from such confusing terms such as assets, debit and credit notes, etc.
Let’s start:
Assuming we have some company X, which was founded a year ago and now we are at the end of the year and tries to accounts of the Company.
We all know from the records of “word itself, that guess a set of draft accounts. Great! That would be a starting point for us. Let’s put some time accounts down on paper (if you’re reading this on your PC, it is advisable to do Below manipulation in Excel):
Account A
Account B
Account C
Account
e-mail account
Account F
Account G
Account H
Add Account
What you see above is just a drop until we someting values change everythin compared. The only point to remember is that, overall, total adjusted values should eventually EqualLogic ask to 0:
Account A 12
Account B 9
Account C -4
Account D -8
Account E -13
Account F -5
G -7
Account account
H 6
Account In 10
Total = 0
If we called back to accounting, each value ice cream account balance. List itself is usually a trial balance calling list. Let us assume that these funds were actually One’s For Our Company X at the end of the year.
Now it is time to understand how the double-entry system actually works. Basically, the purpose is the double entry of transactions, the company was involved intonation Reflect. Suppose not deep fading details, company X has a credit sale were on the first day of the year on five dollars. Before After entry
Transaction transaction
Account A 24:12
Account B 9: The effect on our accounts are the following wing loading 05.14 Clock
Account C -4 – 4
Account -8 -8 D
Account E -13 -1
Account F -5 -5 -10
Account G -7 -7
Account H 6 6
Account I 10 10
Total 0 0
Before trial, which is the most important principle of accounting. So, every time transaction, regardless of the substance of which accounts for one simultaneously increase and the others. In our case, the account B was increased by 5 and F account – Decreased in fifth. Therefore, the total number of accounts EqualLogic to 0 remains unchanged
For the example of practical, we define what each account actually display and call these accounts each:
Account A, Cash – shows The balance of this account, as much money our society ankle in his hand at the moment
B account receivable -. This account shows how much money customers owe us, as at the moment
C Payable Account – Displays bonusamount all that we owe our suppliers at the moment D account borrowing -. Shows how much we are overdue bank loan at the moment
. E Share capital account – Shows how much money the company owes its shareholders to, e money invested in Business By Owner
-. F Revenue Account This account shows how much companies earn from his main activity for the period (usually in the year to date)
Account G. Other income – This report shows the other revenue earned most important activities for the time
H account operating expenses -. Shows how much cumulative expenditure for IT companies to run the main business for the time incurred ‘. / P> Account in interest expense – Shows the amount of interest paid to the Bank for the period
Let us now return to our business if Soldier-Company Goods for five dollars on credit .. It led to increase of Account B and decreasing the account Q. We will see why. Account B does not show us a demand from customers and because we were soldiers on credit if they increase bonusamount 9-14 On the other side through the sale of goods, we earned revenue, reflecting on revenue account must. Prior to the transaction revenue Balance -5, shows us that we are not earned five dollar so far – minus sign should be ignored because it is only for the purpose of obtaining equality is used. Safely through the sale on more bonusamount of five dollars, we should increase our revenue, so it 10th But the negative result of the sign instead, we mathematically decrease of -5 and it is -10.
Let’s take another example. Company 3 USD pays rent for the office in cash. Consequently, we have to consider, A (cash) by 5 decrease and increase accountability H (operating expenses) to 5 Now, if we understand how double-entries work, let’s see how these accounts financial statements that typically form the ultimate objective of any bookkeeping. Assets, liabilities, equity, income and expenses: To this end, we will our accounts given to certain groups. An Accounts (Cash) and B (claims) Goodwill assets of the company. Assets, which companies actually have (eg money) or to have assumed (eg claims). Next group ice liabilities. That’s What companies to suppliers, banks, other partners owes. In our case, the liability goodwill of the Group include: C accounts (creditors) and D (borrowing). Another group, the capital, compris What accounts does not show how much the company owes its shareholders. Also in this group can be called up share capital. All three omni-directional – assets, liabilities and equity are finally balance from of society. Balance sheet accounts always show no information in particular as obsolete. E.g. f Cash Balance EqualLogic to 3, this means that the company present moment Shock 3 USD in cash in his hand. Other groups are the revenue and expenditure. Income or revenue accounts Reflect all incoming funds, companies earn from their activities. E.g. Would it ask for supermarket revenue from goods soldier for Banks – Maintaining interest income, expenditure, etc. Reflect amounts are spent to companies. remember the main thing about the revenue and expenditure is that they always show us not earned or amounts expended for the period (usually in the year to date). E.g. f revenue account balance to U.S. $ 500 31 March, it usually means that companies from a turnover of $ 500 since the beginning of the year to date. Let’s now draft financial statements from trial balance list We Have ball. You will look like this: balance
Assets
A Cash 12
B claims 14
total assets 26
content
C payable -4
D borrowing -8
Equity
E Share Capital 13
Net income -1 Total shareholders ‘equity -14
Total liabilities and shareholders’ equity -26
profit and loss account
F sales -10
G -7 Other income
total power -17
H Operating expenses 6
In the interest expense 10
Total Expense 16
net profit -1 Now we have got the last point. In the example we have called omnidirectional accounting items such as increasing the acceptance of the account and account B F. howeve to make life easy Accountants use debits and credits to formulate accounting statements. It is Follo wing rule:
