For any of the businesses, profit is just like oxygen for a living being, without which it is very difficult to live. So, every business tries to achieve the required profit to its organization. To achieve profit, it is very essential to understand the financials in the business. Financial helps to understand the cost incurred in the business and income in the business which helps to calculate the profit correctly.
If you want to acquaint yourself with the bookkeeping then you need to understand the basics of the debit and credit of the bookkeeping. Debit and credit make it easier to make a proper entry in the bookkeeping. One must first try to understand the rules of debits and credits. Before understanding the debit and credits you need to understand a few other terms in the financial accounting. They are the basic things in financial accounting which help to get a proper idea regarding financial accounting.
A ledger is a book where all the final entries are done and it is a principal book of accounts. Here, all the transactions related to the monetary accounts are maintained and the book of all ledger accounts is kept. It makes the permanent records of all the transactions. It helps make the financial statements.
A trial balance is an accounting report which keeps the balances of every general ledger accounts systematically. The “Debit balances” will list the entire debit balance amount, while the “Credit balance” will list the entire credit balance amount. Here, to have a proper balance account, both the two columns must show identical value.
Trial balance shows the actual health of the business, as it is the summary of all the business activities.
A financial statement shows the actual financial transactions accurately happening in the company in a given year. The financial data which the accountant maintains is useful for preparing a financial statement.
Types of financial statements
There are four major types of financial statements which are Income Statement, Balance Sheet, Cash Flow Statement, and Statement of changes in the shareholder equity. While the whole financial statement shows the overall health of the company, each type of financial statement focuses on each particular aspect of the finances in the company.
Debit and Credit revolves around 3 rules for different accounts:
In market capitalization, the money amount for a company is based on its stock prices, while revenue is simply the inflow of the money by selling goods or services.
There are many of the accounting software which follows the debit and credit is a very systematic way. They take care of the entries and automatically make the entry according to the type of account.
In non-financial transactions, there are no changes in the equity, income, expenses, liabilities, assets due to lack of financial transactions. The best example of a non-financial transaction is of hiring an employee in an organization where there is no journal entry.