Accounting101

• Accountants use this formula to ensure that all transactions are recorded accurately and consistently.
• Assets = Liabilities + Equity
• This system helps in detecting errors, preventing fraud, and providing a clear picture of a company's financial position.
• The accounting equation is the foundation of financial statements, showing how assets are financed by liabilities and equity.
• Each transaction involves a debit entry in one account and a corresponding credit entry in another account, maintaining the fundamental accounting equation.
• Double-entry accounting is a system where every transaction is recorded in at least two accounts, ensuring the accounting equation (Assets = Liabilities + Equity) remains balanced.
• The accounting equation is the basic framework that underlies all financial statements.
• Balance Sheet - Provides information about assets, liabilities, and equity at a particular point in time.
• Financial Statements - A set of documents prepared by an organization's management team to communicate its financial performance over a specific period.
• The accounting equation is the foundation of double-entry bookkeeping.
• Double entry bookkeeping ensures accuracy by recording every transaction twice - once as a debit and once as a credit.
• Debits always equal credits in a double-entry bookkeeping system.
• Financial Statements - A set of documents prepared periodically (monthly or annually) to report on the financial activities of an organization during a specific time frame.
• Income Statement - Reports the revenues earned and expenses incurred over a certain period of time.