Basic Accounting Concepts

Subsidiary ledgers in accounting involve the grouping of individual accounts that share a common element. Individual accounts that share a common element include suppliers, customers, inventory items and fixed assets. These individual accounts collectively add up to the value of the corresponding control account reported as a total in the general ledger. For example the accounts payable is the control account for the subsidiary ledger of suppliers and known as the creditors ledger. The accounts receivable is the control account for the subsidiary ledger of customers and known as the debtors ledger.

Revenue is the gross sales or cash receipts received by a business from its customers in the ordinary course of business that involves selling goods or providing services. Also known as turnover, sales, fees earned. Revenue is the first line detailed on an Income Statement.

Income is the increase in economic benefit available to the business owners from the net result of the revenues less the expenses incurred in earning that revenue for a previous period. Also known as net profit or earnings. Income is the last line detailed on an Income Statement which is why it is also called the "bottom line".

Posting in accounting refers to the process of transferring to the ledgers, the details of financial transactions originally recorded in the journals of a business. Posting is an important step in the double-entry bookkeeping system. Posting transfers the debit and credit aspects of a financial transaction recorded chronologically in the journals to the relevant accounts that are impacted by that transaction in the ledger. Postings take place between the general journal and the general ledger as well as the subsidiary journals to both the subsidiary and the general ledgers.

Accruals in accounting are special journal entries that are made by accountants and bookkeepers at the end of each accounting period and prior to the preparation and distribution of the financial statements. Accruals are the practical application of the matching period where income and expenses must be recorded in the accounting period where they are respectively earned and incurred. Accrual entries involve bringing to account revenue that has been earned but not yet invoiced and expenses that has been incurred but not yet billed.

Depreciation in accounting is a process that proportionately expenses the cost of a fixed asset over the asset's useful economic life. In time, fixed assets will eventually lose all their economic value due to a combination of aging, wear and tear, deterioration and/or obsolescence. Depreciation expense ensures that this decline in the value of the fixed assets is matched in the accounting system against the income generated over the same period of the fixed asset’s useful life. Depreciation then is the necessary fulfilment of the matching principle in accounting. While depreciation expense is a bookkeeping entry that does not involve any cash outlay, it is, under certain conditions, an allowable and legitimate tax deduction as a cost of doing business.

An audit trail is a process pathway built into a well designed accounting system that allows amounts reported in the financial statements to be traced back to their original source. An audit trail consists of a chronological sequence of records and source documents that provides the evidence required by an auditor to reconstruct previous steps in the accounting system. An audit trail facilitates defect analysis and so helps verify the accuracy and reliability of financial reports.

Answer: Most analysis of publicly traded companies is done via the computation of financial ratios. That is, calculating the relationship between two sets of financial numbers reported by the company in their financial statements.

'Revenue' is treated as a credit in accounting because it is actually a sub-category of equity and equity accounts in accounting are credited when they increase.

Revenues or revenue in business is the gross income received by an entity from its normal business activities before any expenses have been deducted. Income may be received as cash or cash equivalent and is typically generated from the sale of goods or the rendering of services for a particular period of time.

This answer will help you understand definition of 'owners equity' and the way 'owners equity' is classified in Accounting. 'Owners equity' is one of the three elements in the accounting equation; the other two are 'assets' and 'liabilities'.

The Chart of Accounts is a structured list of all the accounts in the general ledger. These accounts are created by businesses to record the details of their financial transactions in the accounting information system. The Chart of Accounts groups and indexes the accounts by name and identifying codes according to the structure of the financial reports (i.e. assets, liabilities and Owners Equity for the Balance sheet and revenue and expenses for the Income Statement). A Chart of Accounts with their structured identifying codes provides accounting staff with an efficient and effective tool when processing financial data in a computerized accounting programs.

"An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise."