Mayooran Senthilmani - Accounting: Get Hired Without Work Experience

The concept of accounting starts with the ideology of double entry. In simple terms, double entry means each and every transaction has a debit and credit effect. Given that the revenue is equal to the expenses of the company we can arrive at the fundamental formula of double entry.

Assets = Liabilities + Equity

For example if we take cash sales, the double entry for this will be as follows;

Cash debit

Sales credit

As the cash is coming in to the business it is debited and the sales are credited. We follow a standard practice for double entry which will communicate which entry should be debited and credited.

The table above provides a clear picture about the basic double entry techniques used in accounting.

Now lets look at some of the basic definitions of accounting terms used in accounting practices:

Asset Any item of economic value owned by the company. For example: land, furniture, property, and so on. Assets can be mainly classified as long term assets, current assets (short term), and intangible assets (goodwill of the business).

Liability It is an obligation a company needs to pay. It can be in the form of debt or suppliers payments. Liabilities can be classified as current liabilities, which are the debt which needs to be settled within one year, and long term liabilities which are the debt which needs to be settled over a longer period (more than one year).

Income The total amount of money generated by the company for goods sold and services provided during a certain time period.

Expenses Any cost of running the business.

Shareholders equity An ownership stake in the company in the form of common stocks or preferred stock. It can also be calculated by deducting total liabilities from the total assets of the company.