Basic Accounting Concepts


Lessons in this section:

Lesson One: Basic Accounting Concepts (this lesson)
Lesson Two: Define Accounting 
Lesson Three: Basic Accounting Equation 
Lesson Four: What Are Assets? 
Lesson Five: Liabilities: Definition and Examples
Lesson Six: What is Owners Equity? 
Lesson Seven: The Accounting Equation and Financial Position 
Lesson Eight: Basic Accounting Test


Maybe you've never studied accounting before and you're starting for the first time.

Or maybe you've been studying it for a while and you just don't get it.

Or maybe you feel like you know it pretty well - apart from a few small things.

Well, no matter who you are, if you don't understand the basic accounting concepts then you're going to have a tough time with the subject.


Why are the Basic Accounting Concepts Important? 

Failure

The basic accounting concepts I'm going to list below are probably a bit different to some of the other accounting websites and textbooks.

When I'm talking about basic accounting concepts I'm not talking about the official list of accounting principles from "Generally Accepted Accounting Practice" (GAAP) or the "International Financial Reporting Standards" (IFRS), etc. Those principles are nice but they're theoretical and don't form the backbone of how to actually do accounting.

When I'm talking about the Basic Accounting Concepts I'm talking about the fundamentals which will enable you to really understand accounting and put this subject into action.

This is the stuff you really need to know to practice as an accountant - to record transactions correctly, prepare financial reports, etc. 

This is also the stuff which - if you didn't get it down early on in your accounting studies - you'd be screwed later on! Instead of the subject being logical and simple - you'd get into the very common habit of becoming an accounting parrot! (please don't become an accounting robot or parrot - you don't need to!!!)

No matter how hard you memorized things and studied for your exams, you'd struggle. And, very possibly, fail.

That's why this section is so crucial.


Basic Accounting Concept #1: 
What is Accounting?

What is accounting?

The first thing you should always do, no matter what you're studying, is to define the subject itself. Maybe this sounds kind of dumb, but you'd be surprised how many students don't really know what it is they're studying.

It might sound strange. But it's actually true. And it's the first basic concept and lesson...

So before anything else, let's define accounting. Read through this short tutorial, then move on through the rest of the lessons.


Basic Accounting Concept #2:
The Accounting Equation

The Basic Accounting Equation is the key, key, key, key, key equation behind the entire subject.

Did I mention it's key?

If you truly understand this simple, yet often misunderstood equation, you will be leap years ahead of most accounting students! I really mean it.

You see, everything in accounting (and I mean e-v-e-r-y-t-h-i-n-g ) ...revolves around this equation! The rest of the subject is a breeze if you get this concept.

So this is the 2nd tutorial in this chapter: The Basic Accounting Equation.

The basic accounting equation

And in order to fully understand this key equation, we will be taking a detailed look at its three components, which are each covered in their own tutorials (lessons 3, 4 and 5 respectively in this chapter):

By learning what each of these terms mean, and how they add up to the equation, you'll be in a perfect position to go through more complicated parts of the subject.

Finally, check out our final lesson of Basic Accounting Concepts, where we'll go over The Accounting Equation and Financial Position. 


Test Your Knowledge of these Concepts

Multiple-choice quiz basic accounting

Once you're done with the lessons above, take my Basic Accounting Multiple-Choice Test to check your knowledge.

This quick quiz will test your understanding of the tutorials on defining accounting, the accounting equation and its three elements, as well as financial position.


Two Additional Key Accounting Concepts

These final concepts are actually covered in the next chapter, Basic Accounting Transactions. You can click go through them straight away or you can go through all tutorials in order. If you click straight through, just bear in mind that they build on earlier lessons. So if you struggle, come back to an earlier lesson and go over what you missed.


Profit and Financial Performance

Profit and financial performance

Another very important accounting concept is accounting profit and loss.

A business owner invests in a business and manages it so that the business will produce a profit for him. The amount of profit (or loss) a business makes shows its financial performance.

We'll go over these concepts in detail in the lesson What is Profit and Loss?


The Accrual Basis of Accounting

The accrual basis of accounting

Finally, The Accrual Basis of Accounting is the unique accounting system for recording credit items.

The accrual basis of accounting is covered in a slightly later lesson on income

Please note that this is a slightly more advanced topic, so if you check out this lesson and find it difficult, just come back here and go through all the lessons in order. Soon enough you'll come right.


What's Next?

When you've gone through the tutorials listed above, click through to the next section, Basic Accounting Transactions. 

In this section we'll go over what a transaction is, as well as the ten or so different types of transactions, and how they affect the basic accounting equation.



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Here again are the lessons in this section (I recommend doing the lessons in the order presented in order to get the maximum benefit):

Lesson One: Basic Accounting Concepts (this lesson)
Lesson Two: Define Accounting 
Lesson Three: Basic Accounting Equation 
Lesson Four: What Are Assets? 
Lesson Five: Liabilities: Definition and Examples 
Lesson Six: What is Owners Equity? 
Lesson Seven: The Accounting Equation and Financial Position 
Lesson Eight: Basic Accounting Test



Questions Relating to This Lesson

Click below to see questions and exercises on this same topic from other visitors to this page... (if there is no published solution to the question/exercise, then try and solve it yourself)

Assignment Help:
Accounting for a Sole proprietorship vs Corporation
 
Q: I am a business student at South University. I'm taking an accounting class right now. This is one of the questions I had for my first assignment in …


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