Accounting Basics

Accounting — often called the language of business — is the process of recording, classifying, reporting and analyzing financial data. And while the accounting requirements of every business vary, all organizations need a way to keep track of their money.

Unfortunately, there's very little that's intuitive about accounting. Many small businesses hire accountants to set up and keep their books. Other companies use accounting software like QuickBooks, CheckMark Multi-Ledger and M.Y.O.B. Accounting and keep their accounting functions in house.

It's All about Balance
Using a system of debits and credits, called double-entry accounting, accountants use a general ledger to track money as it flows in and out of a business. They record each financial transaction on a balance sheet, which provides a snapshot of a business's financial condition.

Assets = Liabilities + Owner's Equity (Capital)

The Accounting Cycle
Accounting is based on the periodic reporting of financial data. The basic accounting cycle includes:

• Recording business transactions. Businesses keep a daily record of transactions in sales journals, cash-receipt journals or cash-disbursement journals.