Hey buddy! Welcome to the
very first lesson of Basic Accounting
1 (BA1). This is an extra-special post because this is the very first lesson in
the entire TAB history! Well, congratulations and thank you for trusting our
website! Expect for more lessons and exercises to come!
Should you have any
questions, clarifications and/or suggestions, kindly leave them on the comment
section below!
So you probably are
currently taking your very first major course, that’s why you are reading this,
aren’t you? How well do you know the field? We know you got something in your
head and let us branch it a little bit further.
DEFINITION
The Accounting Standards Council (ASC) defines it as a
service activity. It provides quantitative financial information about economic
entities. Such information is delivered to its users with the use of financial
statements. If an architect has blueprint, then accountant has financial
statements as the end-products of an accounting
cycle.
Furthermore, ASC considers it
to be useful in making reasoned economic decisions among alternative courses of
actions. Business owners do not solely depend on their intuition in managing
business. Their decisions are based on the information written on financial
statements that are fully assessed by auditors. Without accounting, successful entities like Microsoft will never exist.
DISTINGUISH IT FROM BOOKKEEPING
What are its differences
from bookkeeping? Some perceive that the two are the same. A number of students
could not identify the existing demarcation line between the two. Actually,
bookkeeping is just one of its three phases.
Not just because you know
how to keep record and you know the rules of debit and credit you can call what
you are doing as accounting.
THE THREE PHASES OF ACCOUNTING
Bookkeeping or also known as the recording phase is the systematic way of
maintaining a record of all business transactions. This entails the compiling
and keeping source documents that shall be used in journal entries.
What are source documents?
Source documents serve as a proof of any cash receipts, cash disbursement,
sales, and other business transactions. Examples are the receipts that we get
each time we buy goods in the grocery.
Accountant shall be
responsible in recording any amount and must be ready to present these source
documents in case of interrogation.
The second phase is the identifying phase. After keeping a
record, accountants are bound to sort the interconnected transactions in their
corresponding classes. They must identify the effect of such transactions in
different accounts and must arrive to a single monetary figure. The identifying
phase is done through the use of ledgers and/or T-accounts.
And lastly, we have the communicating phase. This phase
encompasses the preparation of the five financial statements: Income Statement,
Capital Statement, Balance Sheet (Statement of Financial Position), Statement
of Cash Flows, and Notes to the Financial Statements. We call this as the
communicating phase because it “talks” to the related users about financial
information that shall serve as the basis in making decisions for the company.
PHOTO REFERENCES
http://www.affordabletax.net/
http://www.letitgoalready.com/small-business-bookkeeping/
Second lesson is now out! Hope you enjoy!
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