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Accounting is a major part of business. No matter what kind of business it is, without good
account skills the business has a good chance of failing. The basics of accounting are
simple, and broken down into four major parts to understand, they are: A Balance sheet,
Income Statement, Cash Flow Statement, and a Statement of Returned Earnings.
The basic understanding of accounting is broken up into two major categories, assets and
liabilities. Assets are items in a company that are for the positive, these include cash,
equipment, buildings and land are assets for a company. Liabilities are things that the
company is responsible for; these can include wages, taxes, leases, and other short or
long-term payables. Combining the assets and liabilities onto a paper for analysis or
reporting is done on a balance sheet.
The balance sheet combines the assets and liabilities to show the book value of all items in
a company, usually divided by a fiscal year, it is a snapshot of the current accounts. To
analyze the balance sheet into greater detail, we can look at the Income Statement to see
how the company is doing, profit wise. The income statement shows how the company net
revenue is turned into net income. This report is to show managers if there was a profit or
not.
The cash flow statement breaks down the information even further. This takes the
information on the balance sheet and calculates whether or not the company will have
profits in the future and do things such as pay bills like the payroll.
