1.CHART OF ACCOUNTS: A Preset List of A Firm’s General Ledger Account Numbers and Their Related Titles Used by a Firm to Record Transactions Incurred on Behalf of the Firm in a Consistent and Systematic Manner and is the Building Block of all Bookkeeping and Accounting Systems. The Creation of a Chart of Accounts (COA) is Generally the First Major Activity Completed by Senior Management Upon Starting a Business. Most Accounting Software Contains One or More Industry-Based Chart of Accounts That can be Customized to Fit the Operating Activities of Different Firms/Businesses.
2.JOURNAL & GENERAL LEDGER: Journals are Used to Initially Record Business Transactions Prior to Posting Them to the General Ledger Accounts Shown in the Chart of Accounts (COA).
3.DOUBLE-ENTRY ACCOUNTING (DRs & CRs: Every Economic/Business Transaction Requires Recording Amounts to Two or More General Ledger Accounts to Indicate the Movement or Transfer of the Related Values Into (DR) and From (CR) One or More Ledger Accounts Based on the Chart of Accounts (COA).
4.DEBITS (DR) & CREDITS (CR): Accounting Language Used to Record/Post Transactions Amounts on the Left (DR) or Right (CR) Amount Columns of the Journal or General Ledger Accounts (See Items 2 & 3) and Based on the Chart of Accounts and Supported by Evidence Such as Receipts, Invoices, Statements etc.
5.JOURNALIZE: (See Item 4) Accounting Language Used as verb to Indicate Recording of Transactions in the Accounting Journal (Item 2) Using the Chart of Accounts (COA).
6.ASSETS, LIABILITIES, & EQUITY ACCOUNTS: Listed in the Chart of Accounts (COA), They Indicate (a) Tangible and Intangible Resources and Items Owned (Assets) by the Firm, (b) Owed by the Firm to Others (Liabilities—Debt), and (c) Owed to/by Investors and Owners of a Firm (Equity). Put Another Way, Assets are Financed by Liabilities/Debt by Third Parties and/or Equity by Owner Investors. See Accounting Equation below.
7.REVENUES & EXPENSES: Amounts Recorded in Accordance With the Accounts Listed in the Chart of Accounts (COA). They Indicate Income Earned from Sales, Services, Commissions, Interest etc. by the Firm (Revenues—CR) and Costs (Expenses—DR) Incurred by the Firm in its Operations.
Note: These are Summarized and Displayed in the Income Statement, and the Net Resulting Difference Between Total Revenues and Total Expenses, the Net Income (CR) or Net Expenses (DR) is Combined With the Total Equity Amount Each Financial Period Shown in the Balance Sheet.
8.THE ACCOUNTING EQUATION, A = L + E: Is Considered the Most Important Concept in Bookkeeping and Accounting. It Summarizes the Concepts of Double-Entry Accounting (Items 3 & 4) and Indicates that Total Assets of the Firm is Financed by Debt to Third Parties (Liabilities) and Equity Investments by Owners of the Firm (ITEM 6). The Amounts must Balance as Indicated in the Accounting Equation. This Relationship is Summarized and Displayed in the Firm’s Balance Sheet.