If you want to get a handle on your finances, learning accounting can take you a long way. For starters, it can make giant spreadsheets, stacks of bills, and complex budgets easy to understand and break down. It can improve your decision-making skills, too. And it can put you in a far better position when tax season comes along.
In other words: figuring out how to learn basic accounting can help you run your business in a more efficient, successful manner.
At Accounting Boot Camp, we’re here to guide you along the way with fun, accessible materials that will teach you accounting and mathematics—regardless of how well you know these subjects.
For beginners wanting to know how to learn basic accounting, building up a foundation of knowledge on broad topics is important. Here are five concepts to get you started.
An income statement, also known as a profit and loss statement, gives you an idea of how your company fared over a given period of time. It’d be impossible to figure out how to learn basic accounting without a strong understanding of income statements.
Your income statements will include information about your revenue, or “top line”—money earned by selling your products and/or services. It will also break down your expenses, which, put simply, are what you spend in order to make revenue (bills, salaries, advertising, etc.). Your income statement will subtract your expenses from your revenue, and the resulting figure will be your net profit or loss.
It’d be difficult to overstate the importance of income statements: They show the profitability of your company over a set amount of time, offering key insights into the general performance of your business.
Another key area to understand when exploring how to learn basic accounting is assets. An asset is, essentially, an economic resource. Your company’s land and building(s) are assets. So are your supplies, equipment, inventory, and vehicles. Your cash on hand is an asset, too, as are your investments and accounts receivable.
Though impossible to measure precisely, your company’s reputation, your intellectual property, your customer base, and your brand equity are considered assets, as well. They may not show up on your balance sheet, and they may not be tangible, but they are nonetheless considered assets.
Your liabilities are considered your company’s obligations. Obtained to fund the ongoing activities of your business, they can be defined as claims on your assets. Their labels frequently include the word “payable.” Accounts payable, which is when someone buys goods and/or services from another supplier on credit, is a common type of liability.
Companies want to ideally keep the number of their liabilities low. If a business can operate successfully with only a few (or no) liabilities, odds are it is doing a great job managing risk and building revenue.
Liabilities shouldn’t always be considered bad, though. Say, for example, your business is expanding and you want to move to a bigger, better location, but you need to take out a mortgage loan to do so. That mortgage loan would be considered a significant liability, but in the long run, if moving helps you grow your business, such a risk would be considered worthwhile.
The owner’s equity is defined as the net worth of your company’s assets. So, essentially, owner's equity is the amount of money the owner has invested in his or her business minus any liabilities. The owner’s equity will rise when a company gains revenue, and it will decrease when a company pays an expense.
When determining how to learn basic accounting, it’s important to understand the double entry system: Every business transaction, regardless of its nature, is going to affect at least two accounts. One account is going to receive a debit entry; the other account is going to receive a credit entry. In the end, the two figures must equal the same amount.
A debit is an accounting entry that does one of two things. Either it increases an asset or expense account, or it decreases a liability or equity account. A credit is the opposite: It increases a liability or equity account, or decreases an asset or expense account.
Dive Into Accounting Today
If you feel more confident after learning about these five concepts, it’s time to take a deep dive into accounting. You could do so by purchasing a dull, 200-page textbook that will almost certainly lull you to sleep. Or, you could check out our entertaining, easy-to-read eBook series that takes you through the basics of accounting, Virgil Whitelaw: Forensic Accountant in Space.
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