Basic Accounting Prinicpals Explained - By: Andrew Davies

Although Accounting is considered to have one basic function it has two related phases. Accounting is considered as "facilitating the administration of economic activity”. The phases are defined as the measuring and presentation of economic data; and providing the results of this process to the interested parties.

Regardless of the size of a company, the company’s accountant will throughout the month measure the profit and loss at various stages in the month, in a quarter and/or during a fiscal year. The results are then published in a statement, including records of profits and losses. This is referred to as an “income statement”. The income statements will include various elements for example accounts receivable which is what is due to the company and the accounts payable which is what is owed by the company. In addition it can also include elements such as retained earnings and accelerated depreciation. These two examples are often at the higher levels of accounting and are often as part of a company that holds disposable assets.

A lot of business accounting is simple bookkeeping. Bookkeeping can be easily explained as a process that will register every transaction for all invoices paid, all invoices outstanding and owed including every dollar and every cent spent and deposited. Owners of a company which might be shareholders or can be just an individual or partnership tend to be more concerned with summaries of these types of transactions which will also be included in the financial statement. In a sense the financial statement will summarize the company's assets and the value of an asset is the cost of it when it was first purchased. Also recorded in the financial statement are records of what the sources of the assets were. So for example some of the assets might be in the form of a loan that is required to be paid back to a financial institution. It is important to note that with accounting that profits of a company or business are also an asset of the company or business.

With reference to double-entry bookkeeping, liabilities will also be summarized. Clearly, a company will want to demonstrate a larger amount of assets against the liabilities, hence showing a profit. The administration and supervision of these specific elements can be seen as being the basic essence of accounting.

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Andrew writes articles about head lice home remedies and using learning piano software for those interested in learning piano online.

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