Accounting: Lesson 1

Basic Accounting

Dr. Sid Bundy, an Accounting Professor at Tennessee Tech University, will be covering basic accounting concepts that are vital for small business owners to know. 

Topics:

Video Lesson Topics

- Basic Accounting Concepts

Accounting is known as the language of business because accounting can provide a to measure and communicate a company’s projections, goals, and performance.

Debit and Credit: This refers to the left and right side of accounts. The left being debit and the right being credit. 

Business Transactions: Are financial events that are recorded in the journal by date then posted in the ledger by account title. 

Accounts: These are grouped transactions summarized by types. 

Chart of Accounts: This is the list of accounts that a business wants to use. These accounts all have their own name and ledger. 

- Five Account Categories

Assets: Are prepaid expenses. This would be anything that is owned by the company that will create future benefit or value.

Liabilities:  These are a company’s debts or obligations. 

Equity: Is a residual, the difference between assets and liabilities. With this category comes the accounting equation of assets-liability=equity. This equation is represented in the balance sheet, which is where the company will show all the assets are financed through debt or equity, also known as the capital structure of the company. 

Revenues: This is what the business earns or the sells. 

Expenses: These are the cost related to making the revenue. 

-Both revenue and expenses are reported on the income statement. The income statement is found by the equation revenue-expenses=income statement. 

- The Rules

The rules insure that the accounting information shared is relevant, reliable, verifiable, timely, and comparable. For larger companies the rules are known as GAAP, or Generally Accepted Accounting Principles. GAAP provides guidance for estimates and allocation systems. The rules can allow for choice between alternatives but all the alternatives are systematic and follow the overall principals for high quality information. Smaller companies can also use GAAP for preparing accounting records and to compare financials to larger companies within their industry. 

Under GAAP, companies use the five types of accounts to summarize their financial performance on four specific statements. These four statements include income statement, balance sheet, cash flow statement, and a statement that summarizes the changes in equity. Companies can choose to provide a report including these four statements on a monthly, quarterly, or annual bases. Most businesses can use software such as quickbooks, netsuit, wave, or freshbooks to write checks, manage accounts receivable, running payroll, tracking sales tax, preparing bank reconciliations, tracking inventory, or scheduling resources for project management. 

- Accrual Accounting

Accrual Accounting is recording revenues, when earned, and matching all the costs associated with earning that revenue, in the same period, giving a more accurate picture of turning a sale of goods into income. The accrual base of accounting requires revenue and expense matching. In order for the matching to happen, GAAP introduces four types of accrual and deferral accounts including receivables, payables, prepaid expenses, and unearned revenue. The gold star for preparing the four financial reports, is to prepare them using the double entry accounting system, on the accrual bases, following the GAAp principles. 

A CPA is a vital resource for tax preparation, and they can also be your go-to financial advisor and answer accounting questions. Your CPA can help you set up in dashboards to track key performance indicators to assist in making better strategic and operational decisions. Go to them with supply chain, financing, budgeting, and expansion questions.

Topics & Lessons

Each Below Topic Contains a Video Lesson and Helpful Downloadable Information

9:32

Basic Accounting

5:29

Financial Statements

12:31

Common Accounting Questions and Errors

4:07

Accountants, CPAs, and Bookkeepers

6:44

Accounting Systems and Software

6:36

Taxes (Links to Taxes/IRS Videos)

7:08

Why it Matters

6:03

Types of Tax Obligations

11:18

Franchise & Excise Taxes

6:35

Payroll Taxes

3:16

Sales Tax

6:45

IRS and State Tax Resources and Due Dates

5:26

Selecting a Business Tax Professional

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