Check out the Test Yourself section at the end of this lesson for a free Basic Accounting Concepts Mini Quiz! And right at the bottom of the page, more questions on the topic submitted by fellow students.
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 many of them are theoretical and don't form the backbone of how to actually doaccounting.
The basic accounting concepts I'm talking about are 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 simple and logical - you'd probably get into the habit of becoming an accounting parrot! (please don't become an accounting robot or parrot - you really 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 important.
Basic Accounting Concept #1: 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 and why.
This might sound strange. But it's actually true. And it's the first basic concept...
And in order to fully understand this key equation, we will be taking a detailed look at its three main components, which are each covered in their own tutorials (lessons 3, 4 and 5 respectively in this chapter):
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.
Additional Key Accounting Concepts
The final concepts below are actually covered in the next chapter, Basic Accounting Transactions. You can click through to 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
Another very important 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.
Most people think they know what income is. It's money you get in, or something like that. That's wrong. Money is an asset. Income is something else. Many students don't really understand the difference between the two and why we deal with income the way we do.
The accrual basis of accounting is covered in our 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.
Before you start, I would recommend to time yourself to make sure that you not only get the questions right but are completing them at the right speed.
Difficulty Rating: Beginner
Quiz length: 3 questions
Time limit: 5 minutes
Important:The solution sheet on the following page only shows the solutions and not whether you got each of the questions right or wrong. So before you start, get yourself a piece of paper and a pen to write down your answers. Once you're done with the quiz and writing down your answers, click the Check Your Answers button at the bottom and you'll be taken to our page of solutions.
In the next section, Basic Accounting Transactions, we'll go over what a transaction is, as well as the ten most common types of transactions, and see how each one affects the basic accounting equation.