Understanding Language of Business
Accounting is the language of a business. It is a system of tracking the income, expenses, assets and debts of a business.
When you looked at it with a trained eye, a business accounting records truly tells the story of the business, using nothing but a business’s books (also known as accounting records). You can practically learn everything about a business and assess whether the company is growing, declining, healthy or in hot soup.
Using the language of business, the ultimate goal here is to create a financial statement. There are 3 parts to the financial statements :
- Income Statements – which records your sales, expenses and profit or loss of your business
- Balance Sheet – which records the assets and liabilities of your business
- Cash Flow Statement – which records the cash flow of your business
Similar to a coin, which has both sides, principal of accounting is the same. The principal of accounting is built on debit and credit. Debit is always equal to credit. in simple terms in and out. If you have a sales, that’s where the out is (credit) and you will receive your cash, that’s where the in is (debit).
Another example, if I buy an asset with my bank balance, my asset debits and my bank credits. If I applied for a loan, which bank pays on behalf and I owe the bank, my asset debits and my liability credits.
All these transactions will be recorded in the financial statements. Giving you a big picture of the actual financial situation of a business.