Accounting 101: Basic Accounting Principles To Know

Would You Like To Know About The Basic Accounting Principles?

Well, the experts of CMA have come up with the basic accounting principles to help the students with their accounting assignments.

Let's Begin,

Debits & Credits: The entire accountancy subject depends on Debits & Credits, you’d use it n number of times while preparing journal entries or T-accounts. It's a simple principle that an increase in assets or a decrease in liabilities results in a debt, whereas a decrease in assets an increase in liabilities results in credits. Always remember that when you insert them in T-Accounts debits = the left side & credit = the right side.

Balance sheet, income flow statement and cash flow statement: These three financial statements reflect a firm’s performance. Different things are measured using these three statements, and they often show up in accounting. It is mandatory for you to know each one of them.

The balance sheet is a screenshot of the company at a specific time and compares their liabilities, assets and owner’s equity. This also shows the firm what it owns like, land, buildings and other assets they possess.

Return On Assets/Return On Investment/Return On Sales

Majority of the firms want to calculate their profits based on their current performance so they can see if they need to make changes in total efficiency or cost production. There are many ways to calculate, but the three famous ones are Return On Assets(ROA), Return On Investments(ROI) and Return On Sales (ROS).

Return On Assets decides that how management uses the assets to produce income for the firm. Return On Investment helps the firms in determining if they are getting sufficient profits for the amount of capital invested in a project. There are various ways to calculate ROI, but the most straightforward formula is: ROI = (Gain From Investment-Cost Of Investment)/ cost of investment.

Now, the last but not the least comes, return on sales shows the firm how much profit they make from 1 dollar in sales.

I hope these basic accounting principles help you in making a perfect accounting assignment.

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