Accounting is keeping record of all your financial transactions – purchases and sales, expenses and investments made for the business. Accounting is the process of rules used to reach results for your business – your assets, liabilities and profit or loss for the period. 

Accounting may also seem like it’s a big mumbo-jumbo and needed for just some officials or regulatory bodies. Trust me, once you get a hang of it, you will see benefits for yourself as well. I won’t lie, the government bodies also require your annual or quarterly financial statements etc. but it’s beyond this need that the accounting benefits you.

Proper accounting gives you an idea of your assets, what you’re being owed to, and your most liquid funds like cash. It also gives you an idea of what you owe and how much you spend and earn. Since accounting is on most cases done on accrual basis, meaning the entry is done at the time the transaction is for (i.e. rent expense for June should be accounted into June and not July when you receive the invoice) and not when the transaction is made, you can keep a record of your period’s results just as assets and liabilities as well. As a side note, we’ll come to more detailed description of accrual basis of accounting later on so not to worry here if you didn’t quite get it.

Generally speaking, accounting is a list of entries made into two statements – balance sheet and income statement both of which we’ll explain later on. Each entry has two sides – debit and credit both of which must always equal (if there are say two debits and one credit, the sum of debits must equal the credit amount). And that’s that. That’s accounting and we’ll show you basic entries in our other course for basic accounting.

Accounting may also seem like a huge deal of math – adding, subtracting, but truth be told, it’s not that complicated. Even experienced accountants are known to add up 2+2 on their calculators so it’s perfectly okay for you to use a calculator to add figures up and to double check yourself. Once we move onto the statements you’ll realize that making a mistake means you’ll discover it very quick so not to worry.