The Basic Principles of Accounting - 1

1176 Words5 Pages
The Basic Principles of Accounting Cherry Marler ACCT205-1203A-17, IP-1 Instructor Jeffery Bloom June 06, 2012 Abstract Accounting is used for several purposes. Investors, creditors, and individuals use accounting to see whether a business is successful or not. Managers and employees use accounting to make decisions on certain objectives. There are four main statements used in accounting: The balance sheet, income statement, the statement of retained earnings, and the statement of cash flow. The equation for accounting is assets equal equity plus liabilities. The equation must always balance out. The Basic Principles of Accounting A business uses accounting to record all financial transactions a business has made. The…show more content…
Debits and credits do not mean debits decrease an account or credits increase an account. Debit and credit can increase or decrease an account. (Editorial Board, 2011). Assets, liabilities, equity, revenue, and expenses has their own balance. A company will produce a trial balance which will give the balance of all these in a certain amount of time such as monthly, quarterly, or annually. The trial balance ensures that account balance is accurate. If the accounting equation isn’t balanced out then there is an error in the accounting records. The final process of accounting is producing financial statements. The first statement is the income statement. The income statement shows a company’s profit or loss after revenue and expenses. The equation for the income statement is revenue minus expenses equal net income. The next statement produced is the statement of retained earnings. The statement of retained earnings starts out with the net income retrieved from the income statement, which is added to the beginning retained earnings from the previous month then subtracts the money paid out. The last document is the balance sheet. A balance sheet contains a more detailed statement of each account balance. (Tracy, 2008). A certain standard of moral and professional ethics should be kept in accounting. If professional ethics are not met, some consequences may be faced. These

More about The Basic Principles of Accounting - 1

Open Document