The Basic Principles of Accounting - 1

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The Basic Principles of Accounting
Cherry Marler
ACCT205-1203A-17, IP-1
Instructor Jeffery Bloom
June 06, 2012

Accounting is used for several purposes. Investors, creditors, and individuals use accounting to see whether a business is successful or not. Managers and employees use accounting to make decisions on certain objectives. There are four main statements used in accounting: The balance sheet, income statement, the statement of retained earnings, and the statement of cash flow. The equation for accounting is assets equal equity plus liabilities. The equation must always balance out.

The Basic Principles of Accounting
A business uses accounting to record all financial transactions a business has made. The financial transactions include all cash and assets coming in and out of a business. The equation for accounting is assets equal equity plus liabilities. Individuals and businesses use accounting for several reasons. Individuals may include creditors or investors wanting to buy stocks. To understand the basic principles of accounting, one must understand the basic terms of accounting such as journal of original entry, debits and credits, assets, liabilities, and equity. There are professional ethics to withhold as well. When recording financial transactions, honesty is the best policy. Technology plays a major role in accounting. Technology has made accounting easier and more productive. Accounting records every financial movement within a business.

Accounting has several primary objectives. The main objective is recording the history of a business. This helps investors and creditors make decisions about a business. For example, if a person was looking to invest into a company, the investor would study the financial records first. (Pilcher, 1933). Another objective is to help the owner, managers, and/or employees make sound business decisions. The business can look at the financial cycles to decide whether they...
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