Learning Basic Accounting Principles

Accounting has been defined as, accounting professor at the University of Michigan, William A. Paton as having a basic function: 'facilitating the administration of economic activity. This function has two closely related phases: 1) measurement and predispose to economic data, and 2) communicate the results of this process to interested parties.

As an example, a company's accountants periodically measure the profit and loss for a month, quarter or fiscal year and publish these results in a profit and loss statement is called a statement. These statements include items such as accounts receivable (what was owed to the company) and accounts payable (what the company owe). It can also be quite complicated with subjects like retained earnings and accelerated depreciation. This at higher levels of accounting and organization.

Much of accounting but also deals with basic accounting. This is the process that records every transaction, every bill paid, every dime owed, every dollar and cent spent and accumulated.

However, the owners of the company, which may be individual owners or millions of shareholders are more concerned with summaries of these transactions, contained in the financial statement. The financial statement summarizes a company's assets. A value of an asset is what it costs when it was acquired. The financial statement also records what the sources of the assets were. Some assets are in loans that have to be returned. The benefits are also an asset of the company.

In what is called double entry bookkeeping, the liabilities are also summarized. Obviously, a company wants to show a greater amount of assets to offset liabilities and profitability. The management of these two elements is the essence of accounting.

There is a system for doing this, not every company or individual can devise their own systems of accounting, the result would be chaos!