Accounting Basics

Assets = Liabilities + Owner's Equity (Capital)

The Accounting Cycle
Accounting is based on

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

• Posting debits and credits to a general ledger. A general ledger is a summary of all business journals. An up-to-date general ledger shows current information about accounts payable, accounts receivable, owners' equity and other accounts.

• Making adjustments to the general ledger. General-ledger adjustments let businesses account for items that don't get recorded in daily journals, such as bad debts, and accrued interest or taxes. By adjusting entries, businesses can match revenues with expenses within each accounting period.