Accounting Basics

If you’re looking to learn accounting basics, you’ll find that there are many resources available to you. These can range from bookkeeping guides to online training. Each one of these will give you an overview of the basics and will help you to get started.

Accounts receivable

Accounts receivable management is a critical aspect of any organization’s assets. It can help companies to manage cash flow, avoid bad debts and evaluate available funds. By doing so, they can build liquidity and maintain customer relationships. However, this can be a complicated process that requires careful attention. Developing a solid AR management system can make the difference between dwindling capital and continued operations.

In the simplest terms, accounts receivable is money owed to a business by its customers. These payments are due after a business has delivered a product or service, or purchased something on credit. If the company fails to collect the payment on time, it must write off the amount as a bad debt expense.

An effective accounts receivables system should allow you to identify past due payments and take action when necessary. This may include a reminder to pay, an extension of the payment period, or even a collection effort.

Having a clear payment collection policy is critical to maintaining good relations with clients and preserving the reputation of your firm. An automated, integrated accounts receivable system can simplify the process by eliminating administrative inaccuracies and errors.

Generally Accepted Accounting Principles

Generally Accepted Accounting Principles are a set of accounting standards used by companies and government entities to prepare financial reports. These standards are intended to ensure that information is reliable and comparable. This makes it easier for investors to make sound decisions.

GAAP was originally introduced in the U.S. in the late 1930s as a response to the stock market crash. The Securities Act of 1933 gave the Securities and Exchange Commission (SEC) the authority to issue guidelines. However, the SEC historically permitted private-sector standards-setting bodies to develop guidance.

Various professional accounting groups began working with the federal government to create accounting standards that were accurate and would avoid future financial crashes. As a result, the AIA issued 10 principles of accounting. Over time, additional principles were added.

Generally Accepted Accounting Principles are required for all publicly traded companies, while non-profit organizations and small businesses may opt to use other methods. Nonetheless, they are encouraged for all organizations, as they standardize the way financial statements are prepared and interpreted.

Double-entry bookkeeping

Double-entry bookkeeping is an accounting basics that allows business owners to keep track of their money. It helps them understand how to make better decisions on the allocation of their resources.

Generally speaking, double-entry bookkeeping uses two types of entries – a debit and a credit. Each type of entry is used for a different type of transaction. When the two are combined, they can provide a full picture of your finances.

A typical double-entry journal entry includes the name of the account, the amount of the transaction, and a memo. For instance, a copywriter buys a new laptop computer for $1,000. The cost of the laptop computer is deducted from the cash account.

Another example is a restaurant’s purchase of a delivery vehicle. This purchase affects two accounts: the cash and the asset.

A simple sole proprietorship does not have many accounts. Single-entry bookkeeping may be sufficient for them, but it will not tell them the full story of their finances.

Liability

Liabilities in accounting basics refer to a debt owed to another entity. They can be real or potential, and they are distinct from assets. They are recorded on a company’s balance sheet. Some of the things that can be considered liabilities include unpaid invoices, wages payable, loans, and mortgages.

Liabilities are important because they allow a company to organize its operations. It is essential for companies to have enough assets to pay off their liabilities. However, too much dependency on liabilities can hurt a business’ financial performance. In addition, too much liability can make a business vulnerable to bankruptcy.

Liabilities are recorded on the company’s balance sheet, and they can have a big impact on the company’s bottom line. They are generally classified into two categories, current and non-current. The difference between the two is not always easily defined.

Current liabilities are those that are expected to be paid within one year. This includes accounts payable, loans, wages, and unpaid taxes.

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