The video tells us about the basics of accounting, the various financial statements that are prepared through the accounting process, the procedures involved in accounting and the major accounting elements.
The video mentions that all the transactions in a business company are noted in a journal, chronologically and date wise. At the end of a period, all the journal entries are then posted in a ledger according to different accounts.
There can be numerous numbers of accounts for different nature of transactions and their collection is called chart of accounts. Every transaction is posted into ledger using double book keeping system, where a transaction affects two ledger accounts; one is a debit leg and the other a credit leg.
For the accounting system to work properly, all the debit and credit postings should be equal. At the end of the period, the entries in all the accounts are consolidated and three financial statements are prepared. The purpose of preparing these financial statements is to properly and effectively communicate the business transactions to the various stakeholders.
One of the financial statements is the balance sheet. It has three components, assets, liabilities and owner’s equity. Assets are the things that the business owns, ranging from fixed assets to current assets. On the other hand, liabilities are the things the business owes to others. Owner’s equity is the share of asset claim that the owner has. In a balance sheet, assets is always equal to liabilities plus owner’s equity.
Another financial statement is income statement. It gives a line item description of the revenues, expenses and net income for the company. The last financial statement is the cash flow statement. It records all the cash inflows and outflows for the company.
References
Investopedia. Current Assets. Retrieved from http://www.investopedia.com/terms/c/currentassets.asp.
Investopedia. Current Liabilities. Retrieved from http://www.investopedia.com/terms/c/currentliabilities.asp.
