Essential Bookkeeping

What is basic accounting

When you start a business, it does not matter whether it is large or small, you know that one of the tasks that you are going to have to take care of is, without a doubt, accounting. However, not all people know the basic accounting of a company, not even the most common concepts that, in a home or family, can be handled. And, in the end, you need to turn to a manager who takes care of everything.

Well, in this case we have thought of helping you understand what basic accounting is, know some of the terms of this and, above all, to make it less difficult for you. Do you want to continue reading to know everything?

What is basic accounting

Basic accounting could be defined as a science that deals with studying and analyzing all transactions, whether financial or economic, that take place in a company. In other words, we talk about everything that has to do with income and expenses that directly or indirectly affect the company.

Thus, the objective of this basic accounting is to record any movement that occurs in the so-called accounting books, but always following the regulations in force in Spain, that is, the General Accounting Plan.

In this way, the result is real and reliable accounts on the situation of the company.

In fact, Article 25.1 of the Royal Decree of August 22, 1985, the Commercial Code, says that "Every entrepreneur must keep an orderly accounting, appropriate to the activity of his company that allows a chronological monitoring of all its operations, as well as the periodic preparation of balance sheets and inventories (...)". What does it mean? Well, it will be the person in charge of the company who will take care of keeping a record of all movements. We are talking about the basic accounting of the company.

Basic accounting: concepts that you cannot lose sight of

Basic accounting: concepts that you cannot lose sight of

And now that you know what basic accounting is, you have to know that there is some concepts that are basic, and that therefore every businessman, or even every person, should know very well. These are as follows:

Balance sheet

It is also known as a report balance sheet and it is going to have a vision about the situation, both economic and financial, of the company in a limited period of time. Within that balance, you find concepts such as assets, liabilities and equity of a company.

Operations log

This concept refers to the different economic and financial operations that take place in a company. All of them must be registered in an accounting book, specifically in the Daily Book as well as in the General Ledger, breaking down the operations according to whether they are debit or credit items.

Balance check sums and balances

When basic accounting is done well, this concept should reflect that both the sums and balances are correct. In other words, we are talking about a document that is done every three months (or when necessary, every month) where the sum of debit and credit and the balances corresponding to both columns is collected.

Accounting cycle

This is the period in which the operations of a company are carried out throughout its fiscal year. Normally, it lasts one year and starts on the first day of the year (January 1) and ends on December 31.

Profit and loss account

In this document where all income must be entered, as well as all company expenses, to know the economic situation of this.

Other important concepts in accounting

Other important concepts in accounting

Although the first concepts that we have discussed are those that fall within basic accounting, there are also many others that must be known to apply this. Therefore, here we talk about some more.

Basic accounting: what is equity

Heritage is conceptualized as that set of assets, rights, obligations ... that a company has. In other words, it is everything that belongs to that company.

Now, within the heritage, you can find three parts:

  • Active. They are assets, rights and obligations that can be: current or current, that is, they will be part of the company for less than a year; or non-current or fixed, which are those that will belong to the company for more than one year.
  • Passive. In this case, we are referring to the obligations, that is, the debts of a company. As with assets, these also differ between current, for less than a year; and non-current, for long-term debts.
  • Net worth. This is the difference between assets and liabilities, as it offers the "book" value of a company.

Basic accounting accounts

Basic accounting accounts

Another very important concept for basic accounting is that of accounts. These are already established in the General Accounting Plan and are used to obtain clear information on the status of the company. And what accounts are those?

The must and the have

Or what is the same, the expenses and income that a company has. The debit includes all the expenses that the company has; while to the credit are income.

Sale

Refers to the figure that comes out as result of a difference between debits and credits. And this balance may be debtor, that is, more is owed than there is; or creditor, who has more than what is owed. When both yield a zero amount, that is, there is the same debit and credit, then it is said that there is a "settled account."

Double entry system

This system is the most used in accounting, but for basic accounting it can be a bit more complicated. It is about having accounting entries with two lines, one for debits and another for credits.

Accounting books for basic accounting

These are the documents where all the documentation must be kept and will contain all the economic and financial information of the company. Why are they called books? Well, because in their day they were real books, only now they are "digital books."

Right now, in accounting, there are several books that are mandatory, such as:

  • Diary book. In it, all the accounting movements that occur in the year must be recorded, updated daily.
  • Inventory book and annual accounts. It reflects the assets and liabilities of the company. Among the data you will find are the initial balance of the company, balances of sums and balances, closing inventory or annual accounts.

Apart from these two, on a voluntary basis, other books can be taken. For example, the General Ledger (where debit and credit are recorded), the bank book, warehouse book ...


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