Accountancy/Introduction to Accountancy
Contents [hide] * 1 What are the Rules of Accounting? * 2 The Nature of Accounts: Definitions * 3 Overview of the accounting cycle * 3.1 Debits and Credits * 4 Separate Entity Concept * 4.1 Journal Entries * 4.2 T-Accounts * 4.3 Ledger Accounts * 4.4 Types of Accounts * 4.4.1 Summary of types of account * 5 Basic Accounting Principles * 6 Financial Statements * 7 Basic Accounting Classes Course Notes * 8 Resources |
 What are the Rules of Accounting?
Accounting is the mechanism used to record activities and transactions that occur within a business. In its simplest terms, Accounting is the "language of business." However, in order to have an understandable record, a standard set of rules for accounting within the U.S. has been established. These rules are called the Generally Accepted Accounting Principles (GAAP), and all U.S. businesses are expected to follow them.
The first general rule of accounting is that every transaction is recorded. It has been said that businesses that do not record transactions, or incorrectly record transactions, are committing fraud, although this is not necessarily the case. Fraud is part of a much broader area called material misstatement which also can include error. An error is not necessarily fraud under the law. While there are exceptions to this rule, the guidance for applying those exceptions is specifically defined by GAAP, and is applicable to all businesses.
The second general rule of accounting is that transactions are recorded using what is called a "double-entry" accounting method. Originally developed in Italy in the 1400s, double-entry means that for a complete record of a transaction, two entries are made. For example, if you have $5 in cash, and want to buy some gasoline for your lawn mower, you take your portable gas can and your money to the gas station and exchange $5 in cash for $5 in gas. This...