Accounting, a meticulous record of financial transactions, represents an essential process for the success of businesses both large and small. While large companies often hire a sizable multi-employee accounting department (in addition to doing business with separate audit firms), small companies may opt to simply hire a clerk. In an individual business, the person in charge may have to handle all the accounting on their own, without the help of a separate professional. Whether you want to manage your own finances or are interested in working as a clerk for someone else's business, learning the basics of accounting can get you started.
Method 1 of 3: Learning About Financial Statements
Step 1. Know the difference between cash and surcharges
A cash transaction represents the type of commerce that takes place when you go into a store and buy a piece of gum: you pay the store at the same time and in return they give you the gum. Additions, on the other hand, take into account items such as credit, bills and billing, not just direct payment at the time of the transaction, as well as intangibles such as reputation.
Step 2. Learn how to file a tax return
The income statement represents the most basic principle of accounting. It records the profit margins a company has had over a specific length of time, whether it is a week or a year. This statement is determined by two factors: your business income and your expenses.
- Income represents the inflow of money given in exchange for goods and services over time – although it does not necessarily mean that it was paid to the company during the period. It can include cash transactions as well as accruals. If accruals are included on the income statement, the income for a given week or month takes into account the invoices and bills that were sent during that time, even if the money has not been collected until the next statement period. As such, these statements are intended to demonstrate how profitable a particular business has been during the reporting period, not necessarily how much money it has produced.
- Expenses consist of any use of money by the company, whether due to the costs of materials and supplies or labor and wages. As in the case of income, expenses are recorded during the period in which they were committed, and not necessarily when the company debited this amount.
- The accounting equivalence principle requires a company to compare income and expenses together whenever possible, to determine what its actual profitability was over a given period. In a successful company, it will reveal practically a cause-and-effect relationship, in which, for example, increased sales will also increase your income and incur business-related expenses: there will be an increase in the need to buy raw materials for the store and expenses related to sales commissions, if applicable.
Step 3. Create a spreadsheet for the financial statement
Unlike the income statement described above, which works over a certain period of time, the balance sheet, or financial statement, can be thought of as a snapshot of your business at a specific point in time. This spreadsheet has three important components: the company's assets, its liabilities and the capital of its shareholders or owners in a given period. It may be useful to think of this comparison as if the company's assets were equal in value to the liabilities plus the capital of the owners or shareholders. In other words, what you have is determined by what you owe plus what is in your charge.
- Assets are everything the company has. It can be helpful to think of them as all the resources it has at its disposal: that is, vehicles, money, raw materials, and equipment purchased by the company at some point. Assets can be tangible (plants, equipment, etc.) or intangible (patents, copyrights, brand equity, etc.).
- Liabilities represent everything that is owed to others at the time of creating the spreadsheet. They can include loans that must be repaid, money owed for raw materials in the form of credit, and any wages owed to employees who have not yet been paid.
- Capital is the difference between assets and liabilities. It is sometimes considered as the “theoretical value” of a company or business. When it comes to a large corporation, that capital may belong to the shareholders; if the business has a single owner, that capital belongs entirely to him.
Step 4. Make an income stream statement
Essentially, the income stream statement specifies how much money has been generated and used by a business and also contains its investment and financing activities over a given time frame. It is mainly derived from the balance sheet and income statements related to the period in question.
Method 2 of 3: Learn Accounting Basics
Step 1. Follow canonical accounting principles
The basic principles that guide accounting practice are based on a set of statements designed to ensure transparency and integrity in all business transactions.
- The Economic Entity Assumption states that an accountant working for a self-employed business (with only one owner) must maintain a separate ledger for business transactions that does not include the owner's personal expenses or transactions.
- The Currency Assumption indicates that economic activities in the country must be measured in the local currency (in Brazil, the Brazilian real) and that, therefore, only activities translatable into that currency will be recorded.
- The Time Period Assumption states that all business transactions will be represented at different time intervals and that these periods will be accurately recorded. They are often quite short: at least one annual report must be done, but it is common for several companies to produce reports on a weekly basis. This report must also specify when the period started and ended. In other words, including the date is not enough; the accountant must clarify in the report whether it corresponds to a week, a month, a four-month period or a year.
- The Cost Principle refers to the amount of money spent at the time of a given transaction, without considering inflation.
- The Principle of Full Transparency requires accountants to disclose relevant financial information to any interested parties, in particular investors and creditors. These data must be given in the form of a financial statement or as footnotes in the report.
- The Current Matters Principle assumes that the business will continue to operate for the foreseeable future and requires the accountant to disclose any information relating to future risks or probabilities of failure. In other words, if he believes the company will go bankrupt at some future time, he is obligated to disclose this information to investors and any other interested parties.
- The Matching Principle indicates that expenses will be placed side by side with income in all financial reports.
- The Income Recognition Principle is an agreement indicating that income will be recorded as it was earned at the time the transaction was completed, not when the money has been paid to the company.
- Materiality represents a guideline that gives accountants some level of professional judgment in determining whether or not a certain amount is insignificant for reporting. That doesn't mean he's allowed to report something inaccurately; in fact, this point refers to an accountant's decision to round a certain amount to the nearest integer, for example, when reporting the financial transactions of a particular business.
- Conservatism is a principle indicating that the accountant must report potential losses to the enterprise (indeed, it is their obligation to report these losses), but not consider potential gains as gains. This is to prevent investors from developing an inappropriate image of the company's financial situation.
Step 2. Follow the rules and standards of the Financial Accounting Standards Bank
The FASB (Financial Accounting Standards Board) has established a large number of rules and standards used internationally to ensure that stakeholders have reliable and accurate information and that accountants work ethically and report transparent.
Step 3. Follow generally accepted industry practices
These practices are the expectations that accountants have of other professionals in the same field, in order to help guide the industry. These include:
- The principles of reliability, verifiability and objectivity require accountants to disclose values on which other professionals agree. This exists both to preserve the dignity of the accountant and to guarantee the veracity and transparency of any future transactions.
- Consistency requires an accountant to be consistent in the way they apply various practices and procedures in financial reporting. If, for example, a certain business changes its cost stream, the accountant has an obligation to report this change.
- Comparability requires accountants to conform to certain standards, as in the case of canonical accounting principles, so that one company's financial reports can be easily compared with another's.
Method 3 of 3: Developing Good Accounting Skills
Step 1. Familiarize yourself with creating spreadsheets
Microsoft Excel and all other spreadsheet programs are an invaluable tool for accountants as they help you keep accounting records in graphical form or perform calculations to create a financial spreadsheet. Even if you know the basics, it is always possible to evolve and try to learn intermediate or advanced skills for creating spreadsheets, diagrams and graphs.
Step 2. Read accounting books
Visit your local library to find accounting books or purchase one from the bookstore of your choice. Look for titles written for beginners by experienced authors in the accounting sciences, as these books are more likely to contain well-informed information.
- Introduction to Accounting, by Pru Marriott, JR Edwards, and Howard J. Mellett, is a widely used introductory textbook that is considered an excellent copy for both academic and beginners purposes. wish to specialize in accounting science.
- College Accounting: A Carreer Approach ("Accounting in Higher Education: A Professional Approach," by Cathy J. Scott, is a popular textbook in accounting and financial management courses. It also has the option of coming with a CD-ROM containing small accounting guides that can be very valuable for beginners.
- Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports (“Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Statements,” by Thomas R. Ittelson, is a best one -seller that introduces the reader to the balance sheet and can be an excellent read for beginners interested in entering the accounting business.
Step 3. Take an accounting course
You can always look for courses at the local university or take classes online for free. Try using pages like Veduca or other learning platforms to learn about free courses taught by renowned accounting professionals.