What are some basic accounting tips?


Quick Answer

Knowing the basic accounting equations for different business types is the most important basic accounting tip, according to BasicAccountingHelp.com. For a sole proprietorship, calculate its total assets by adding liabilities to the owner's equity. To calculate a corporation's assets, add liabilities to the shareholders' equity. Every business owner should understand basic accounting in order to record financial transactions and share the results.

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Full Answer

Assets represent what a company or small business owns. Items such as cash, land, buildings and equipment are assets, as Investopedia explains. A liability is a legal obligation payable to another party, and accountants determine equity by subtracting liabilities from an entity's total assets.

There are two options for recording financial transactions, single entry and double entry bookkeeping, as BasicAccountingHelp.com details. Double entry bookkeeping records every transaction in terms of credits and debits. For example, if a business receives $5,000 for a product, add this transaction to the debit side as cash and to the credit side as revenue.

When using the double entry system, debits, or assets, go on the left side, while credits, which include liabilities and equity, on the right. Since assets must equal liabilities and equity, adding a $5,000 transaction to assets means adding $5,000 in liabilities or equity to maintain the basic accounting equation. Using the double entry system makes it easy to ensure that credits and debits are equal, as noted by Investopedia.

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