Read All About The Golden rules Of Accounting

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“Capital isn’t this pile of money sitting somewhere, it’s an accounting construct”- Bethany McLean.

If you are new to the accounting world or want to know more about it, this is your all-in-one article.

What is Accounting?

The process of recording financial transactions about a business is called accounting. This process includes summarizing, analyzing, A forensic accountant aims and reports these transactions to oversight agencies, regulators, and tax collection entities.

The financial statements used in accounting are a concise summary of financial transactions over an accounting period, summarizing the company’s operations, financial positions, and cash flows.

How Accounting Works

The field of accounting has many jobs and some of them overlap with those of bookkeeping. In short, accounting helps us understand and interpret a company’s financial help through the combination of the knowledge of numbers and accounting principles:

Below are listed the major Accounting Principles:

  • Accounting helps a person to look at a company’s profits and losses as well as the present figures in a detailed manner allowing the management to know about how the organization is doing.
  • It deals with corporate and auditors which makes audits of the company by providing necessary figures and information.
  • Accounting helps a person review budgets at the end of a financial year and makes sure that the expenditure will not deplete the organization’s coffers. Accounting also helps to keep a company’s expenditure under control.

Also Read: Free/Paid Accounting Software For Small Businesses

Types of Accounting

Accounting is a vast indispensable part of any organization. Before you get to know about the golden rules about accounting, you should first know the number of types in this field:

Financial Accounting

This is concerned with compiling information for financial reports for external uses. In this process, all the financial activities are recorded in a book called a ledger. Financial accountants are majorly concerned with compliance and must abide by GAAP also known as Generally Accepted Accounting Principles.

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Managerial Accounting

This documents, monitors, and assists the financial planning of any organization. Accounts under this category work to analyze and create a budget to fulfill the needs of the short-term and long-term goals of an organization.

Cost Accounting

This type of accounting has been seen as a subcategory of managerial accounting but affects the activities of both financial and managerial accountants. These accountants look after all variable and fixed costs, seeing if the output aligns with the cost to produce a product.

Auditing

The action of a company in providing financial documents to a third party for financial feedback is known as external auditing. While Internal auditing determines the effectiveness of internal accounting processes.

A person working as an internal auditor then reviews and improves what managed policies and approves procedures on a related project. An accountant can become a certified internal auditor CIA and some public companies and government agencies may require their internal auditors to hold this certification.

Tax Accounting

Accounting helps businesses stay in compliance with the internal revenue code why you did find the attached documents each year. Usually, large organizations hire a tax accountant to navigate the complexities of financial records.

Also Read: Here’s all to know about The Different types of accounts in accounting

Accounting Information Systems

These are also known as AIS. These systems help a company collect, store and process its financial accounting data. They work to integrate with other departments such as connecting the hiring process in human resources to the payroll function of a newly hired. The improvement of successful accounting procedures is maintained by professionals.

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Forensic Accounting

This type of accounting is used to navigate the financial records of individuals or businesses. recreation of financial information when some information is missing or not available to review can be required. The aim of a forensic accountant is to gather all available documentation and precisely comprehend the accounts for all transactions in financial statements.

Public Accounting

This type of accounting refers to the business that provides accounting advice to clients based on their needs. Public Accountants can work in auditing assisted tax returns consultants on procedures and provide legal advice.

Governmental Accounting

A government accountant manages the financial planning and allocation of resources of departments within a local state or Federal government. This type of accounting can comply with the government accounting standard board.

This is responsible for developing and consistent accounting procedures for local and self-governments’ employees will have to comply with the federal accounting standards advisory board.

What skills are required for Accounting

Any particular field you need to be changed in some particular Department.

For accounting, this is the list of important software:

  • Organization and attention to detail
  • Time management
  • Analytical and problem-solving skills
  • From written and oral communication
  • System analysis
  • Mathematics  and deductive reasoning
  • Critical thinking
  • Active learning 
  • Clerical knowledge
  • Proficiency with Microsoft Office 
  • Interpersonal communication
  • Adaptability
  • Knowledge about the industry
  • Spreadsheet proficiency
  • Team collaboration
  • Prioritizing
  • Service orientation. 

Golden Rules for Accounting

Debit the Receiver Credit the Giver

This principle is used in the case of a personal account. Something important to the organization becomes an inflow and therefore the person must be credited in the books of accounts. The Converse of this is also true which is why the receiver needs to be debited.

Debit what comes in Credit what goes out

This principle is applied in the case of all real accounts full stop account involved in every land and building etc. I have a Debit balance by default. new debit what comes in you adding to the existing account balance.

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This is exactly what needs to be done. similarly, when your credit goes out you are releasing the account balance  when a tangible asset goes out of the organization

Debit all Expenses and Losses Credit all Incomes and Gains

This rule is applied when the account in question is a nominal account. the capital of the company becomes a liability. therefore it has a default care credit balance. when you credit all in counseling games you increase the capital and by the baking expenses and losses due decrease the capital. this is exactly what needs to be done for balance.

These rules which are being addressed as the golden rules of accounting allow anyone to become a bookkeeper. the only thing one needs to do is to understand the types of accounts and then simultaneously apply the rules.

Frequently Asked Questions (FAQs)

What is the Equation for Calculating Accounting?

The accounting equation formula is:
Assets=Liabilities+Equity 

What are the Basics of Accounting?

The basics of accounting are; the process of recording, assessing, and communicating financial transactions.

What are the Types of Accounting?

The four types of accounting are corporate accounting, public accounting, government accounting, and forensic accounting.

What are the two major Accounting Methods?

Cash accounting and accrual accounting are the two major types of accounting.

Which degree is best for Accounting?

Although a master’s degree or any equivalent degree is required for better accounting, graduates of accounting degrees are working as entry-level workers or pursuing professional accountant status.

How much does an Accountant make?

According to the stats of 2019, the median salary of  $71,550.

What do you mean by a Journal in Accounts?

A journal is a book that is a detailed account that records all financial transactions of a particular business. It is used for the future reconciling of accounts and the transfer of information to other official accounting records such as the general ledger.

What are the Three Basic Principles of Accounting?

 The three basic principles of accounting are:
  – Debit is receiver and credit is the giver
  – Debit is what comes in and credit is what goes out
  – Debit is expenses and losses while credit is income and gains.

What is a Ledger Entry?

It is a record made of a business transaction. a ledger entry may be made under either a single entry or a double-entry bookkeeping system.

Usually, it is made using the double-entry format in which the debit and credit sides of each entry are always in balance.

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About the author

Ashutosh Bhatt

Ashutosh joined Lio as the marketing manager and has played a significant role in our growth. A traveler at heart, you might just catch him on a flight to any exotic countries around the world when he isn't busy ranking websites.

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By Ashutosh Bhatt