Accounting Basics: The Language of Business
Before debits and credits, you need the vocabulary: what an account is, what the five account types are, and how the accounting equation ties them all together.
Learning objectives
- State the accounting equation.
- Classify accounts as Asset, Liability, Equity, Revenue, or Expense.
Step-by-step
1. The accounting equation
Assets = Liabilities + Equity. Every transaction preserves this equation. If cash goes up, either something else on the left goes down or something on the right goes up.
2. Five account types
Assets (what you own), Liabilities (what you owe), Equity (owner's stake), Revenue (money earned), Expenses (money spent to earn revenue).
3. Chart of accounts
The chart of accounts is the master list of every account your business uses, organized by type and usually numbered (1000s = assets, 2000s = liabilities, etc.).
4. Fiscal periods
Bookkeeping happens inside periods — usually months, quarters, and years. Each period closes to a summary, and the next period starts fresh.
Key takeaways
- State the accounting equation.
- Classify accounts as Asset, Liability, Equity, Revenue, or Expense.
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