Do you want to know how to learn accounting?
Consider that accounting is a process of collecting, recording, and communicating financial information about your company.
The main goal of accounting is to give a true and fair view of the financial position and performance of your company.
The information used by accountants is generally accepted as reliable information that also provides a decision-making tool for you and all managers within the business.
If you take time to study accounting, you can gain insights into how well your company operates on a daily and even annual basis.
Read on to learn all about how to learn accounting on your own.
1. Develop Strong Accounting Skills
You can strengthen your accounting skills by gaining an understanding of the difference between accounting and bookkeeping.
Bookkeeping involves recording, classifying, and summarizing business transactions. The bookkeeper records financial events such as payments on loans, accounts payable, and checks written.
An accountant creates and analyzes financial statements to report accurately what’s going into profit or loss each month.
Become Familiar With Creating Spreadsheets
To learn accounting, you need a powerful tool that can help take your business to the next level.
Excel, for example, goes beyond a simple accounting worksheet as it offers more than just spreadsheets and charts. It gives accountants an edge with its advanced features such as formulas for complex calculations or graphs. Use spreadsheets to make financial forecasts based on numbers tracked over time.
Read Books on Accounting
What is the best way to study accounting? Start to read accounting books.
For example, you can purchase a book such as “Accounting Tools” by Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso to learn how to use accounting to drive business decisions.
If you’re looking for a simple accounting book that explains basic principles, then consider purchasing “Accounting Guide” by Josh Bauerle.
Select a Learning Method and Dedicate Time
Before they try to find an accountant, some people enjoy the challenge of learning on their own time and prefer in-person classes. Others enjoy accessing knowledge at any moment. An online course can serve as a quality accounting coach.
Online courses are typically less expensive than in-person classes. You can also hop into and out of an online course around your busy schedule. Of course, if you enjoy learning in person, you might not enjoy the solitude of learning online.
2. Understand and Practice Accounting Basics
Let’s review four basic accounting principles that can help build your knowledge base.
Understand Dual-Entry Bookkeeping
Record both sides of the transaction via the dual-entry system. For example, if you purchase office supplies for $1, your debit account decreases by $1, and your credit account increases by $1.
Dual-entry bookkeeping provides a tool that helps small business owners make better decisions about their operations. For instance, if you want to buy a new computer for your business, the dual-entry system allows you to see how much it will cost by looking at your debit and credit accounts.
Practice Recording Debits and Credits
You use debits and credits when making dual-entry records. For example, if you have an increase in salary expenses, your accounting records show a debit on the left side and a credit on the right side.
Practice recording debits and credits to become better at accounting. The process helps you understand how each transaction affects financial statements.
Set Up and Maintain a General Ledger
Using a general ledger allows you to track everything from accounts payable and receivable to assets and liabilities.
In addition, consider linking your financial statements together. This means that when you make changes in one part of the system, it will automatically update related accounts. For example, if you decrease your debit account for office supplies, then the cash account decreases, too.
You can do this by setting up master accounts in your general ledger. These then link to related sub-accounts.
Distinguish Between Cash and Accruals
A cash account represents an immediate exchange of currency between two entities. An accrual account is any transaction that results in a credit or billing situation.
3. Learn How to Read and Analyze Financial Statements
Get good at reading and analyzing the following financial statements:
- Income statement
- Balance sheet
- Cash flow statement
You’ll start seeing trends that relate to earnings, spending, and profit.
4. Principles of Accounting
It isn’t enough to learn the numbers side of accounting. Pay attention to general principles and regulatory agencies as well.
Generally Accepted Accounting Principles (GAAP)
GAAP is the system used to produce official financial statements. It serves as the standard for measuring the success of your company in terms of generating profit. For example, using GAAP, you can determine what type of bank loan your business qualifies for based on the cash flow your company generates.
GAAP represents a consensus about how to record or classify particular transactions as well as how to present financial statements.
The Financial Accounting Standards Board (FASB)
The FASB decides when and if to issue new standards and is accountable for setting GAAP in America. Read the FASB website to see how decisions regarding accounting standards get made, who’s making them, and why.
Generally Accepted Industry Practices
The generally accepted industry practices of accounting include the following.
- Assurance in accounting
- Keeping receipts and supporting documentation for all income and business expenses
- Managing inventory
- Preparing invoices to customers and statements of account rendered to clients
- Allocating overhead costs based on direct labor cost or time study
- Recording cash received by the business
Understanding the Difference Between Bookkeeping and Accounting
The main difference between bookkeeping and accounting is that bookkeeping involves recording everyday transactions, while accounting analyzes the costs and revenues of your business over time.
Basic Accounting Terms
The list of basic accounting terms you need to become familiar with includes.
- Income statement
- Profit and Loss (P&L) statement
- Cash flow statement
- Petty cash accounting
- Balance sheet
- Debits and credits
- General ledger
- Accruals
- Expenses
- Equity
Conclusion
Now you know the steps for how to learn accounting. As you can see, it’s not difficult. It merely requires dedication to get started and the discipline to stay true to the goal.