Accounting definition: Simple description of recording the flow of money

It is beneficial for students to learn a simple accounting definition to answer any questions that follow in the basic accounting course. This will ensure that you understand the topics of accounting easily as you go deeper into the lessons.

What is a simple accounting definition?

A simple accounting definition consists of important terms that describe the process of recording the flow of money in and out of a business from start to end. It goes as follows:

Accounting is the process of identifying, measuring and communicating economic information to provide owners of business and others with useful information to help them assess performance and make informed decisions.

This simple accounting definition should be learned in detail. Knowledge of a simple accounting definition prepares you to learn about the concept and purposes of accounting, users of accounting information, traditional and emerging careers in accounting, ethical principles and accounting, and accounting as a system.

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ALICE: Assets, Liabilities, Income, Capital, Expenses

Studying principles of accounts can be very easy once you learn which items are Assets, Liabilities, Capital, Income and Expenses. The accounts that fall under these 5 headings are used throughout your POA course. READ MORE

Assets: Owned fixed and liquid items with a debit balance

Assets are the items owned by a business. They are non-current also known as fixed or they are current also known as liquid. Non-current or fixed assets are those tangible or non-tangible items that have long life in the business. READ MORE

Liabilities: Owed long and short-term items with a credit balance

Liabilities are the items owed by the business. They are non-current also known as long-term or they are current also known as short-term. Non-current or long-term liabilities are items that are paid off in more than one year. READ MORE

Income: Earned, unearned and contributed money

Income is money that a business acquires that is earned, unearned and contributed. It has a credit balance in the ledger accounts when it increases and a debit balance when it decreases. READ MORE

Capital: Invested assets and the liquidity of a business

Capital is assets invested into a business and the term describes the liquid assets available to spend. Generally, both fixed and current assets represent capital but stakeholders are more concerned about the continuity of the business using cash and assets that can be turned into cash quickly to pay liabilities and expenses. READ MORE

Expenses: Spending that’s direct, indirect, operating and non-operating

Expenses are the goods, services and charges that a business incurs as it functions. It has a debit balance in the ledger accounts when it increases and a credit balance when it decreases. The cost of expenses in relation to earned income determines whether the business makes a profit or a loss. READ MORE

Debit and Credit: Simple view of in and out

Accounts are shaped like a T that has a left side called Debit or Dr and a right side called Credit or Cr. Debit means to have, increase, go up or come in and Credit means don’t have, decrease, go down or go out. A simple way to look at it is to say Debit and Credit mean to record the items that are in and out of the business. READ MORE

Increase and decrease of ALICE accounts

In the financial records of a business, the liabilities, income and capital accounts are responsible for the business having assets and expenses to function. ALICE accounts fluctuate consistently throughout an accounting period and it is necessary to know what it means for them to have an increase and decrease in balance. READ MORE

Accruals: How to record owed expenses and revenues in the Accounting Cycle

Accruals are monies owed either by the business or to the business. This happens when the business does not pay cash for expenses incurred within the accounting period or when cash is not received for income earned within the accounting period. READ MORE

Accounting Cycle: Complete basic accounting in 8 steps

If you research Accounting Cycle, you would be bombarded with versions that might make your head spin. This article focusses on basic accounting for small business owners and students to understand the steps involved when recording the financial performance of a business. READ MORE

Journals: Complete 7 Day Books with 4 types of transactions

Posting to Journals is step 2 of the Accounting Cycle. After sorting out your Source Documents into cash and credit transactions, it is time to record the amounts in the 7 Journals, also called Day Books and Books of Original Entry. READ MORE

Ledger accounts: Simple breakdown of Types, Format, Double Entry, Balance

Ledgers is the third step in the Accounting Cycle. After you sort out Source Documents and record the amounts into the 7 Journals, the figures then go to the ledger accounts. Each account records details of every activity that happens in a business. READ MORE

Trial Balance: 6 important things to know

The Trial Balance is the 4^th step in the Accounting Cycle. It is the nail-biting moment for students of accounting. It tells you a lot about your performance thus far, and can leave you feeling frustrated or relieved when you’re done. READ MORE

Income Statement: 6 key points for reporting profitability

The Income Statement is the next step in the Accounting Cycle after the Trial Balance is finalised. It is one of 3 financial statements that is prepared by an accountant. The other 2 are Balance Sheet and Cash Flow Statement. READ MORE

Balance Sheet: 10 key parts of the statement of financial position

The Balance Sheet is the next step in the Accounting Cycle after the Income Statement is completed. It is one of 3 financial statements that is prepared by an accountant. The other 2 are Income Statement and Cash Flow Statement. READ MORE

Cash Book: How to record cash, bank and discounts

“Cash is King” is a common saying in business. While satisfying your passion and filling the needs of consumers are also rewarding, the handling of cash and cash equivalents is the main concern of any business owner. This is why the Cash Book is dedicated to recording all transactions that involve cash, cheques and bank transfers. READ MORE

7 Key financial ratios students should know in basic accounting

Financial ratios are calculated to analyse the performance of a business using figures in the financial statements. When learning the principles of accounting, you should be aware of the figures presented in the Income Statement and Balance Sheet. READ MORE