by: Mansi gupta

Knowledge of accounts can make life much easy. If you are to invest
in a new business or joining your forefather’s business, planning to
take some loan, looking for job in any marketing company, desire to
be the manager of a multinational company or have the onus to manage
your own assets and liabilities, knowing some basics of accounts
becomes mandatory.


Broadly, accounting is bifurcated into two categories-

Cash Bases Accounting

Accrual Accounting


The Cash Based accounting pertains to the management of an
individual’s personal monetary transactions. In this case, he keeps
a track of the money he withdrew, deposited, gave or received from
someone etc. This accounting comes to life when actual cash
transactions take place.

The Accrual Accounting requires an accountant who notes the
transactions even if no money has been actually exchanged. This
method works on the principle of comparing or seeing the ratio of
the expenses to expenditure. If the expenditure is more, you need to
cut down your luxuries, if not then it’s always good to have some
savings for future. This type of accounting tells you the amount
that you owed; this might not match with the figure of your bank
balance.


In the language of accounting there are several key terms that one
needs to be familiar with. Some of the crucial ones are discussed
below-

The Assets- the assets are generally those possessions of an
individual that have a good market value or are quite valuable.
Assets are mainly classified into three types-
Current Asset- the cash is the most basic asset of any individual.
The money that is being held in accounts like the checking and
savings accounts is also included in the cash. Also inclusive are
the marketable securities in the form of bonds, stocks, shares etc.
The money lent or payments due from clients, even form a part of it.


Fixed Asset- comprises of all the tangible valuable things like
property, machines, equipments, land and the like that are not meant
to be sold.


Intangible Asset- incorporates all the untouchable things like
copyrights, patents, trademarks etc. that have tremendous monetary
significance.


The law of opposites governs the nature; where there are assets,
there will be liabilities. These are the debts that you have to pay
back to your creditors. This can be done through giving cash or any
other asset like jewelry, some other goods etc. Liabilities again
are of two kinds-

1. The Current Liabilities- the liabilities that are to be paid back
within a certain time limit and most often through your current
assets. These include the accounts payable i.e. type of bill that
you have to monthly, the Notes Payable-loans taken from banks meant
to be repaid within 30 days and the Accrued Expenses- the compulsory
expenses like taxes, wages, interests etc. where the bills are not
received but the balances of each must be repaid.

2. Long Term Liabilities- those debts that can be repaid at ease for
the tenure is more then a month.



The Financial Capital- is the economic capital. It is any liquid
medium or merchandise that stands for wealth or other styles or
capital. There are four ways to manage and display the financial
capital. First, this capital is needed when a contract is made with
any sort of capital asset. The financial instruments work in the
form of currency in case of sale, purchase or trade of goods i.e.
the medium exchanges. Second, it works as a settled medium or mode
like gold for the
Standard of Deferred Payment. Third, The Unit of Account has a
market value attached to it which in turn varies with the economy of
the country. Fourth, The Source of Value is concerned with financial
capital that needs to be saved and recovered. It is a collection of
things like gold, real estate, collectibles etc.


Petty Cash is an important factor in business. It is the smallest
account within a business setting or the cash in bills and coinage
required to pay little expenses.

Types of Business- there are several kinds of business one should be
aware of like


Sole proprietorship- where a single individual who starts the
business owns it too.

Partnerships- the companies or businesses started by two or more
persons where they conjointly own it.


Corporations- involve lot many shareholders or investors who are
responsible in taking decisions for the company.

Limited Liability Companies- can be said to be sisters of
corporations. Here the business members are not under a legal
obligation to pay the debts if the business fails.



Payrolls- the term payroll designates the manner in which you will
be paying the employees of your company and even yourself. Many
multinational companies cater to payroll service provider companies
that do the work quite efficiently.


These are some of the broad guidelines that will help you grasp the
basics of accounting. It is essential to have some such wisdom for
accounts as it is fruitful in all walks of life.


About the author:
Mansi gupta writes about asset and liability Learn more at
http://www.assetsandliabilitiesbook.com