Many including myself, when we hear accounting, the reflex that comes to mind is fear. Yes, fear!!! The fear of the numbers, summation and the financial analysis that follow suit. Many without an accounting background like myself believe that accounting is a hard course to comprehend. I have come to realize that acceptance of the course accounting is not hard, but that opinion is a thing of the mind and does not exist, rather it is the use of ambiguous terms without a detailed understanding of them that makes accounting a course look complex. Haven started a course with one on my faculty whom I will be sharing his identity in subsequent episodes, The good news is, In a few episodes, I’ll be introducing you to accounting in its most simplified form as I am been put through recently. I want to believe this write up will make others like me without a background in mathematics, statistic or account embrace the new learnings while enhancing their knowledge of accounting as well as financial literacy.
The first is to get you acquainted with some basic financial terms and their meaning and as the subsequent edition comes in, we will increase your accounting vocabulary bank by adding more accounting terms and their meanings.
Let’s start with some basic tips you need to know such as:
Entity: Simply means an establishment either a business or a company. Examples are Glo, Shoprite, Zenith bank, UAC Foods, Unilever, Julius Berger, NNPC, Amala Sky and any business you are doing as well. They are all entities. Either large scale or small-scale business as minibus (Korope) transport business. It pleases me to buttress that, the individuals are not the entity but the business itself is the entity.
Assets: These are the resources needed for a company or business to function. Just like humans need the heart to function so does business needs assets to function. These assets are categorized into Non-current and Current assets which we shall discuss deeper in subsequent episodes. Examples of Assets are Land, Buildings, Cars, generators, Office furniture, Laptops, Printers, and Projectors, just to mention a few.
Equity: The capital the business owners are willing to use to start up a business or a company. The term Liability on the other hand is the debt a business owner is willing to accept at a startup of a business or while running the business or a company.
Now that we are familiar with some tips in accounting, I shall now introduce us to the types of financial statements that exist in accounting and its addendum called Notes or analysis of the financial statement. Let us look into the financial statements. There are four types of financial statements namely:
1) Statement of Financial Position or Balance Sheet
2) Income statement also known as a comprehensive income statement or in layman’s terms like me, it is called a profit or loss statement.
3) Statement of Change in equity.
4) Statement of Cash flow.
5) Notes to the account
Watch out for the next episode where we shall be discussing the types of financial statements and the types of Assets.