- Assets: These are resources owned by a business that provide future economic benefits. Examples include cash, inventory, equipment, and buildings.
- Liabilities: Liabilities are obligations or debts that a business owes to external parties. This can include loans, accounts payable, and accrued expenses.
- Equity: Equity represents the ownership interest in a business. It's the difference between a company's assets and liabilities and is often referred to as shareholders' equity or owner's equity.
- Income: Income, also known as revenue or sales, is the money a business earns from its primary activities, such as selling goods or services.
- Expenses: Expenses are the costs incurred by a business in its operations to generate revenue. These can include rent, wages, utilities, and supplies.
- Double-Entry Accounting: This is the system where every transaction has two equal and opposite effects, ensuring that the accounting equation (Assets = Liabilities + Equity) remains balanced.
- Financial Statements: These are the primary means of communicating the financial performance and position of a business:
- Accrual Basis vs. Cash Basis: Accrual basis accounting recognizes revenue and expenses when they are incurred, regardless of when cash is exchanged, while cash basis accounting records transactions only when cash is received or paid.
- Depreciation and Amortization: These are methods of allocating the cost of assets over their useful lives. Depreciation applies to tangible assets like buildings and equipment, while amortization applies to intangible assets like patents and copyrights.
- GAAP (Generally Accepted Accounting Principles): These are a set of standard accounting principles, standards, and procedures that companies use to prepare and present financial statements.
Understanding these basic concepts lays the foundation for further exploration into the intricate world of accounting. As you continue your journey, you'll discover how these concepts intertwine and apply in various business scenarios, enabling you to make informed financial decisions and contribute to the success of organizations.
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