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Accounting is a process that tracks money
that you earn (income) or spend (expense). Individuals,
small businesses, and large corporations all need to know this
information. The first steps in the accounting process are done by
bookkeepers. These bookkeepers keep and organize all the financial
information of a company. Accounting records are called books.
Today, most accounting “books” are really computer files. Each book
has many accounts. Each account is the record of one individual part
of a company. For example, a phone company has many accounts. One
of those accounts shows how much you owe the phone company and how
much you have paid for phone service.
books must show income – the money coming into a business. A
company receives money from selling products or from providing a
For example, a computer company sells a computer; it
receives money for its computer. A mechanic fixes a car; he
receives money for the service he provides. Both the computer
company and the mechanic need to make a profit. Profit is extra
money; it is money left over after the costs are paid. Without profit, a company will
even, but it will not grow.
must show expenses – money going out of the business. A computer
company needs to buy the materials to make its computers. It needs
to pay its employees a salary for building the computers. It needs
to pay for its building and for the
utilities the building needs. A
company also needs to pay taxes. All of these costs are expenses.
accounting books must show the balance – the money left over at the
end of the month. The income and expenses are usually reported once
a month. Then expenses are subtracted from income. The money left
over at the end of the month is called the balance. If the company
is doing well, that balance will be a profit!
Most companies also
need a report for each full year’s activities. This report shows
how well the company is doing. Is there a good profit? Then the
company is doing well. Is there no profit? The company is not doing
well. Is there a loss? The company may be in trouble.When you look at a financial chart, when you see the lines going up that usually means profit. If the line goes down, the company
fail because their owners aren't good with accounting. Be sure you
know how to keep books if you own a business or if you want to spend
your money well.