Definition
ACCOUNTING
Accounting is the process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated. Accounting is the language of business.
Accounting provides information on the
- resources available to a firm,
- the means employed to finance those resources, and
- the results achieved through their use.
An 'account' is a specific location for recording transactions of a like kind. For example, in the gas-for-cash transaction above, two accounts are used, a "Cash" account and a "Gas" account. Unused by that example, but described is an account for "Equipment" which would include the portable gas can and the lawn mower.
Journal Entries
Example Journal
The process of recording entries to a journal is called journalizing.
Types of Accounts
Assets = Liabilities + Owner's Equity
A central axiom for accounting is the accounting equation above. Depending on the type of company involved, Owner's Equity may be "Shareholder's" or simply "Equity", but the equation holds. The list of all of the accounts (along with their respective account numbers) is called the Chart of Accounts
The effects of debits and credits on the types of accounts is shown on the following table:
