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Accounting is all about logic and relies on some key relationships. Some of the important ones are shown here. The most important relationship is the accounting equation.
The main building blocks in an accounting system are the ledger accounts. These are like lists that record the similar transactions together.
Ledger account types are either the groups of assets, liabilities, owners equity, revenue or expenses.
Ledger account balances keep track of business financial performance.
The logical relationship between the ledger accounts explain the key financial reports.
Firstly, the Balance Sheet summarises the asset, liability and owner’s equity to determine the financial position of the business.
Secondly, the Income Statement measures profit or loss (or performance) from the revenue and expense figures.
Because accounting study is hard, some say it is like learning a foreign language!
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