Chapter 4

Digging into Accounting Basics

In This Chapter

arrow Understanding the two main accounting methods

arrow Deciphering debits and credits

arrow Examining the Chart of Accounts

arrow Looking at the different types of profit

Ah, the language of financial accounting — debits, credits, double-entry accounting! Just reading the words makes your heart beat faster, doesn't it? The language and practices of accountants can get the best of anyone, but there's a method to the madness. Figuring out that method is a crucial first step to understanding financial reports.

In this chapter, I help you understand the logic behind the baffling and unique world of financial accounting. And you don't even need a pocket protector!

Making Sense of Accounting Methods

Officially, two types of accounting methods dictate how a company records its transactions in its financial books: cash-basis accounting and accrual accounting. The key difference between the two types is how the company records cash coming into and going out of the business.

Within that simple difference lies a lot of room for error — or manipulation. ...

Get Reading Financial Reports For Dummies, 3rd Edition now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.