business accounting.
The Basic Principals And Personal Accounting Reviews
By Louis Soul
Accounting has been defined as (by Professor of at the University of Michigan William) a pattern of having one basic function: "facilitating the administration of economic activity. This function has two closely related phases: 1) measuring and arraying economic data; and 2) communicating the results of this process to interested parties."
With GAAP, if GAAP is not the principles used for preparing financial statements, then a business needs to make clear which other form of they're used and are bound to avoid using titles in its financial statements that could mislead the person examining it.
GAAP's in are not cut and dried. However they're guidelines, and as such are often open to interpretation. They are estimates have to be made at times, and they require good faith efforts towards accuracy. You've surely heard the phrase "creative accounting" and this is when a company pushes the envelope a little (or a lot) to make their business look more profitable than it might actually be. This is also called massaging the numbers. This can get out of control and quickly turn into fraud, which is also called cooking the books. The results of these practices can be devastating and ruin hundreds and thousands of lives, as in the cases of Enron, Rite Aid and others.
Personal accounting
On personal accounting, you balance your checkbook to note any charges in your checking account that you haven't recorded in your
checkbook. Some of these can include ATM fees, overdraft fees, special transaction fees or low balance fees, if you're required to keep a minimum balance in your account. You also balance your checkbook to record any credits that you haven't noted previously. They might include automatic deposits, or refunds or other electronic deposits. Your checking account might be an interest-bearing account and you want to record any interest that it's earned.
It's important not to confuse profit with cash flow. Profit equals sales revenue minus expenses. A business manager shouldn't assume that sales revenue equals cash inflow and that expenses equal cash outflows. In recording sales revenue, cash or another asset is increased. The asset accounts receivable is increased in recording revenue for sales made on credit. Many expenses are recorded by decreasing an asset other than cash. For example, cost of goods sold is recorded with a decrease to the inventory asset and depreciation expense is recorded with a decrease to the book value of fixed assets. Also, some expenses are recorded with an increase in the accounts payable liability or an increase in the accrued expenses payable liability.
Personal exemptions - this is a certain amount of income that is excused from tax, and taxable income - This is the balance of income that's subject to taxes after personal exemptions and deductions are factored in. So you should understand all the basic meanings of certain terms in accounting.
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