Core Accounting Concepts and Financial Terminology
Core Accounting Concepts
Transactions
Financial transactions that the company made in the development of its business: buying and selling of goods and services, payments, and collections.
Accounting
Science that measures, assesses, and records the transactions made by the company to provide information to certain persons (users). It focuses on economic resources, leaving aside the human dimension.
Quantifiable Elements
Means that all the elements forming the assets should be valued in monetary units. Property and rights represent the positive, and obligations represent the negative:
- Wealth = Assets + Rights - Obligations
Assets and Liabilities
Each and every one of the items or components that make up the assets of the company, including assets, rights, and obligations.
Account
Accounting tool used to represent the value of one or more assets and liabilities and to monitor their values.
Journal Entry
Mandatory accounting procedure. Daily recording of all financial transactions relating to the company.
Ledger
No longer solely paper-based. Its mission is to group transactions by the company into the accounts, involving passing the journal entries to the ledger accounts.
Inventory and Annual Accounts
Compulsory accounting documentation. It opens with the detailed initial assessment of the company. Trial balances of amounts and balances must be collected at least quarterly. The year-end inventory and annual accounts consist of the balance sheet, profit and loss account, statement of changes in equity, the cash flow statement, and the memory (notes).
Key Taxes and Documentation
Income Tax for Individuals
Personal tax and direct tax on the income of individuals according to their personal and family circumstances. In the company context, this is replaced by Corporation Tax.
Corporation Tax
A direct tax levied on the income of corporations and other legal entities not subject to income tax.
Business Tax
Local tax levied on the mere exercise of economic activities. These activities may be of a business, professional, or artistic nature.
Value Added Tax (VAT)
Imposed on final consumers.
Inventory
A document that contains a detailed account of the elements of the company's assets, properly valued, at a given time.
Liquidity
The speed with which an asset can be converted into money without suffering significant losses.