Why do we need to know and understand accounting terms before understanding financial statements?
Isn't it a bit like saying that a doctor has to master the entire human body before being allowed to diagnose the common flu?
Or like saying that a pilot needs to understand every part and widget inside his plane before flying it?
Not exactly. But it’s definitely a benefit to have a good, solid grasp.
While you may be able to get by on some basic accounting terms
(let's say, for example, assets, liabilities and cash), there will be a
time when more is needed for you to obtain a more complete picture of
the business or venture that you are running, or about to buy into.
But right now, you don't need to understand all of it at once.
Get started with the basic concepts and then slowly explore the rest, at your own timing.
This page will act as a dictionary for you whenever you need to
get hold of a certain explanation, so use it as a reference headquarters
and check back often.
This section will cover the basic accounting elements - what
makes up a set of financial statements - such as assets (current and
non-current), liabilities (again current and non-current)and equity.
Each of these is a category all by itself, which we will explore in
detail. And of course, we'll explore the financial statements as a
We'll also look at the accounting equation and the basic
mechanics of bookkeeping - which is what an accountant does every day -
or "keeping the books".
To really turn it up a notch, we'll look at accounting ratios and
how they can help us assess a business/venture, be it our own or
something that we may want to invest in.
And to REALLY micromanage our own business, we will look at cost/managerial accounting.For more about this, go to Introduction to Management Accounting. If you would like your own home business then you can find great info and helpful tips here.