30/04/2025
Let us discuss about basic accounting principles. According to google, one of the meaning of Accounting is, "The system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results."
Based on what I have learned in college, Accounting has 5 Elements:
1. Assets
2. Liabilities
3. Capital
4. Revenues &
5. Expenses
This 5 elements can be analyze or evaluate thru increases (value received) and decreases (value parted with) for every business transactions. The first three elements which composed by Assets, Liabilities and Capital is shown in the Financial statement called Balance Sheet. In this Balance Sheet, the resources and the capacity to operate is shown. While the Revenues and Expenses are shown in the Financial Statement called Income Statement. In this report, the result of the operation of business was shown called Net Income or Loss.
In this 5 elements of Accounting, the equation will result into:
Assets = Liabilities + Capital
The accounting equation shows that how the Assets being acquired. It maybe acquire thru investment by the owner (Capital) or purchased thru cash own by the owner still. on the other side, the assets maybe acquire on credit. This situation shows that the obligation of the company to a creditor(Liabilities) arises.
Net Income/Net Loss = Revenues - Expenses
Net Income can be added on the capital account while Net Loss shall be deducted in the capital account.
As of now, our discussion will end up here for the mean time.
