| Accounting has been defined as (by Professor of | | | | Personal accounting |
| Accounting at the University of Michigan William) a | | | | If you have a checking account, of course you |
| pattern of having one basic function: "facilitating the | | | | balance it periodically to account for any differences |
| administration of economic activity. This function has | | | | between what's in your statement and what you |
| two closely related phases: 1) measuring and arraying | | | | wrote down for checks and deposits. Many people |
| economic data; and 2) communicating the results of | | | | do it once a month when their statement is mailed to |
| this process to interested parties." | | | | them, but with the advent of online banking, you can |
| Much of accounting though is also concerned with | | | | do it daily if you're the sort whose banking tends to |
| basic bookkeeping. This is the process that records | | | | get away from them. |
| every transaction; every bill paid, every dime owed, | | | | You need to discover if you've made any errors in |
| every dollar and cent spent and accumulated. | | | | your recordkeeping or if the bank has made any |
| Owners of a company, which can be individual | | | | errors. Another form of accounting that we all dread |
| owners or millions of shareholders, are most | | | | is the filing of annual federal income tax returns. Many |
| concerned with the summaries of these transactions, | | | | people use a CPA to do their returns; others do it |
| contained in the financial statement. The financial | | | | themselves. Most forms include the following items: |
| statement summarizes a company's assets. A value | | | | Personal exemptions - this is a certain amount of |
| of an asset is what it cost when it was first acquired. | | | | income that is excused from tax, and taxable income |
| The financial statement also records what the | | | | - This is the balance of income that's subject to |
| sources of the assets were. Some assets are in the | | | | taxes after personal exemptions and deductions are |
| form of loans that have to be paid back. Profits are | | | | factored in. So you should understand all the basic |
| also an asset of the business. | | | | meanings of certain terms in accounting. |