The fundamentals of accounting refer to the basic principles and concepts that form the foundation of accounting practice.
Here are some of the key concepts that are considered to be the fundamentals of accounting:
Double-Entry Accounting: This is the core principle of accounting that states that every financial transaction has two equal and opposite effects on the accounting equation.
Financial Statements: Financial statements, such as the balance sheet, income statement, and cash flow statement, are key tools used by accountants to communicate financial information about a business to stakeholders.
Debits and Credits: In accounting, debits and credits are used to record financial transactions in a double-entry accounting system. The Accounting Equation: The accounting equation is the foundation of double-entry accounting and states that Assets = Liabilities + Owner's Equity.
Journal Entries: Journal entries are the 1st step in the accounting process and involve recording transactions in a journal.
Ledger Accounts: Ledger accounts are used to summarize and classify transactions recorded in the journal.
Trial Balance: A trial balance is a tool used to ensure the mathematical accuracy of the ledger accounts and financial statements.
Accruals and Deferrals: Accruals and deferrals are important concepts in accounting that involve recognizing revenue and expenses in the appropriate accounting period.
Depreciation: Depreciation is a method used to allocate the cost of a long-term asset over its useful life.
Accounts Receivable and Payable: Accounts receivable and payable are important components of company's financial statements and represent amounts owed to and by the company.
These concepts form the foundation of accounting practice and are essential for anyone seeking to understand financial statements and make informed business decisions.
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