Today we are going to discuss about a different subject that is accounting which is necessary to know for developing an Accounting software, Point of sale, ERP, Banking solution etc.
I divide this tutorial into some series for clearly understanding the accounting.
First of all we have to know some basic terms of accounting and their definition.
There are hundreds of terms in accounting. But among them few are necessary to know(Assets, Equity, Liabilities, Income, Expense, Debit, Credit, Journal, Ledger, Financial Statement, Trial Balance, Balance Sheet, Profit, Loss etc..)
Today we are going to learn about the terms definition..
Asset is a possession(personal property/ownership) of business that will bring the business benefits in the future.
Example: Employee, land, cash, Account Receivable, Debtors(those people who owe money from your business).
Liabilities is a present obligation(Liable to pay) of the enterprise arising from the post events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.
Example: Loan, Account Payable, Creditors(those people from whom you owe money).
The owner’s equity is simply the owner’s share of the assets of a business.
Income is simply the event that results in money flowing into the business.
Example: Sales, Service, Interest Received, Rent Received.
Accrued Income is thus income your business has earned that is still owed to your business.
Expense is simply the event that results in money flowing out the business.
Example: Salary, Wages, Electric bill, Water bill, Insurance.
Accrued Expense is the money that will flow as a result of the expense that will flow out of at a later point in time.
These are the basic definition of accounting terms. We will see later about journals, ledger, Financial statement, balance sheet and trial balance when we learn some practical knowledge about accounting in next part of this series.
Before finish, remember one thing accounting is basically lays on one equation that is…
Asset = Equity + Liabilities
That’s all for today. See you in the next part where we learn some wonderful transaction of accounting.