Chapter 4
Digging into Accounting Basics
IN THIS CHAPTER
Understanding the two main accounting methods
Deciphering debits and credits
Examining the Chart of Accounts
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. ...
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