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In the short run accounting is a systematic process of identifying recording measuring classifying verifying summarizinginterpretingand communicating financialinformation It revealsprofitor loss for a givenperiod and thevalueand nature of a firmsassetsliabilities andowners equity Accounting is one of the key functions for almost any business it may be handled by a bookkeeper and accountant at small firms or by sizable finance departments with dozens of employees at larger companiesIt can be split up into a wide range of different areas and in this task I hope I can explain how the accounting system works and therefore be a lot more beneficial for Lee CrowtonFirstlythe accounting equation and the statement of financial position The accounting equation is what keeps all of the transactions in balance and helps users of the information make sense of what areas each transaction affects The financial position of any company is based on the following items Assets what the company owns Liabilities what the company owes to other parties and Owners Equity the difference between assets and liabilitiesThe two sides of the equation are represented by the two parts of the statement of financial positionResources supplied by the owner resources in the businessThe equation looks like this Capital AssetsBut if someone else has provided some of the assetsCapital Assets - LiabilitiesHere is an example of how the equation works if a company buys a new delivery truck for 20000 using a 20000 loan from the bank then the company has an asset of 20000 as well as a liability of 20000 to pay back to the bank As you can see the asset equals the liability in this example Secondly is the double entry system for assets liabilities and capital All businesses whether they use the cash-basis accounting method or the accrual accounting method usedouble-entry bookkeepingto keep their books A practice that helps minimizes errors and increase the chance that your books balance double-entry bookkeeping gets its name because you
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