Accounting Basics

936 Words4 Pages
Accounting is a way to provide information that” identifies, records and communicates the economic events of an organization”(Weygandt, J., Kimmel, P., & Kieso, D., 2012). In order to ensure that businesses and accountants produce similar financial statements, they are held to generally accepted accounting principles or GAAP standards (Weygandt, 2012). In addition to GAAP standards, the Sarbanes-Oxley Act of 2002 was passed by Congress to help reduce unethical behavior by large businesses (Weygandt, et. al., 2012). The combination of the two provides reassurance to stakeholders or interested parties that the financial statements are uniform and provide reliable data. This is of the utmost importance for a business to be successful. It’s at this point that it is important to understand that the basic accounting equation is “assets = liabilities + owner’s equity” (Weygandt, et. al., 2012). This is the fundamental equation that all transactions fall under in one way or another. This equation should balance at all times. Assets are items which add value to the company such as Cash, money owed to the company, equipment, supplies, etc. (Weygandt, et. al., 2012). Liabilities are those items which cost the company money or equity such as money the company owes to employees or obligations that the company owes to other businesses (Weygandt, et. al., 2012). When the assets are added up and the liabilities are subtracted the part left over is the Owner’s Equity in the business (Weygandt, et. al., 2012). It’s how much the owner has invested in the company. To understand the basics of accounting a person needs to understand the steps involved. Each step is necessary in order to provide complete and accurate financial stat... ... middle of paper ... ...ndt, et. al., 2012). All closed accounts will have a zero balance (Weygandt, et. al., 2012). After the temporary accounts are all closed, the Post Closing Trial Balance can be prepared. The Post Closing Trial Balance shows the list of permanent accounts and their balances that will be used to start the next accounting cycle (Weygandt, et. al., 2012). Another step that can be performed is to prepare the Classified Balance Sheet. It separates the Current Assets and Liabilities; long-term investments; property, plant and equipment; and Intangible Assets (Weygandt, et. al., 2012). It also shows the Owner’s Equity (Weygandt, et. al., 2012). This is the complete accounting cycle and the new cycle can begin. Works Cited Weygandt, J., Kimmel, P., & Kieso, D, (2012). Accounting Principles. Retrieved from:
Open Document