Introduction to Accounting
Accounting is the process of recording, summarizing, and reporting financial transactions. It provides the information businesses, investors, and regulators need to make sound economic decisions.
The Accounting Equation
Assets = Liabilities + Equity
Every financial transaction affects at least two accounts while keeping this equation in balance. It is the foundation of double-entry bookkeeping.
Five Major Account Types
Every transaction is recorded as a debit (left side) and a credit (right side). The effect depends on the account type:
| Account Type | Description | Increase | Decrease |
|---|---|---|---|
| Assets | Resources owned (cash, inventory, equipment) | Debit | Credit |
| Liabilities | Obligations owed (loans, accounts payable) | Credit | Debit |
| Equity | Owner's residual interest in the business | Credit | Debit |
| Revenue | Income earned from normal operations | Credit | Debit |
| Expenses | Costs incurred to generate revenue | Debit | Credit |