Accounts: Reviews on Basic Principals and Personal Accounting | Accounting

By MaryMaseko
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Word Count: 341

Accounting has been defined as (by Professor of Accounting at the University of Michigan William) a pattern of having one basic function: "facilitating the administration of economic activity. This function has two closely related phases: 1) measuring and arraying economic data; and 2) communicating the results of this process to interested parties."

Much of accounting though is also concerned with basic bookkeeping. This is the process that records every transaction; every bill paid, every dime owed, every dollar and cent spent and accumulated.

Owners of a company, which can be individual owners or millions of shareholders, are most concerned with the summaries of these transactions, contained in the financial statement. The financial statement summarizes a company's assets. A value of an asset is what it cost when it was first acquired. The financial statement also records what the sources of the assets were. Some assets are in the form of loans that have to be paid back. Profits are also an asset of the business.

On personal accounting

It might seem obvious, but in managing a business, it's important to understand how the business makes a profit. A company needs a good business model and a good profit model. A business sells products or services and earns a certain amount of margin on each unit sold. The number of units sold is the sales volume during the reporting period. The business subtracts the amount of fixed expenses for the period, which gives them the operating profit before interest and income tax.

You need to discover if you've made any errors in your recordkeeping or if the bank has made any errors. Another form of accounting that we all dread is the filing of annual federal income tax returns. Many people use a CPA to do their returns; others do it themselves. Most forms include the following items:

Standard deduction - some personal expenditures or business expenses can be deducted from your income to reduce the taxable amount of income. These expenses include items such as interest paid on your home mortgage, charitable contributions and property taxes.

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