Basic Accounting Primer

Accounting is the system a company uses to measure its financial performance Some even call it a separate language you can use to communicate and understand all financial operations of any given business

Accounting is the system a company uses to measure its financial performance. Some even call it a separate language you can use to communicate and understand all financial operations of any given business. Transactions are recorded and classified into categories such as sales, purchases, assets and liabilities. This helps a company determine past performance, present condition and future calculations. There are three kinds of financial statements that give a company an idea of its position:

Balance Sheet

A balance sheet is a snapshot of the resources of a company, or its liabilities and equities.

Income Statement

An income statement is actually the breakdown of a company's operating activities. It lists the firm's revenue and expenses and the difference between them to show the income or loss over a period. It covers only the proceeds from goods and services.

Cash Flow Statement

A cash flow statement shows information about the company's cash inflows and outflows over a period of time. Unlike the income statement, this report shows cash transactions only.

To help you with the different topics and terms here is a list of terms and their meanings:

1. Ledger: A group of accounts.
2. General Equation for Accounting: Assets equals Liabilities plus Owner's Equity.
3. Assets: These are items owned by the business that have some value.
4. Liabilities: The debts of the business i.e. what it owes.
5. Owner's Equity: Net value of the business.
6. Expenses: Running costs of the business.
7. Credit: Amount logged on the right side of a T-account.
8. Debit: Amount logged on the left side of a T-account.
9. T-Account: A tool used to show the relationships between accounts and also to show debits and credits.

If you are looking for accounting software, there are many programs to choose from. QuickBooks is one of the most popular programs on the market today. It is easy to set up and understand by the average individual. It can be configured to be as complex or easy as you need it. If you are using a Mac, you may want to try Goldenseal Software. There is also Peachtree; however, it is better suited for mid to larger-sized companies. You can also save money by downloading programs such as Quicken.

There are good online reviews of Intuit's Quicken 2007 Deluxe and Quicken 2207 Premier. If you like Microsoft, you can try Microsoft Small Business Accounting 2007. For Windows operating systems, there is Money 2007 Deluxe, which falls just short of Quicken. This is a good choice if your bank only supports downloads in QFX format. It appears that Quicken is the leader in small business accounting software. If you use an older software program, you may want to see what's out there lately and try an upgrade, especially if your program is 3 years old or older. Developers stop supporting software after 3 years and you don't want to be left with a relic.

I hope this article has helped you understand the language of basic accounting. It is not as hard as it first may seem. With a little knowledge and organization, you can take control of your accounting needs and be on the road to prosperity for you and your business.

Valleyfield Accounting Services are Liverpool accountants, catering for businesses of all sizes. Article sponsored by Internet Business Blog.