Accounting is one of those tools that make complex things like a huge sum and its breaking down through somehow diverse and seemingly unrelated activities look relatively easy to grasp to us as we strive to follow it basics principles before we get to its most difficult parts as people who stepped on the earth centuries before tried to do and as our descendants will testify about us and just as like we are doing right now .
Investopedia defines accounting …show more content…
Accrual Accounting is a method of accounting in which economic consequences define transactions instead of cash flow consequences . Cash Accounting is a method in which cash flow consequences , rather than economic consequences, define transactions , that is , events are defined as cash transactions are recorded only when cash changes hands (Siegel &Yacht , 2009 ). Both Methods are believed to have been textually published by Pacioli in 1994 ,even though they began to be used by traders earlier in order to record and track economic activities and cash flow by the modern accounting technique age when Europe was flourishing in many regards and trade singularly . Accounting , through these two methods , helps perform the same functions as those performed by early traders , that is , keeping track economic transactions ( exchanges , cash in , cash out , with the proper timing ) . Those transactions can be tracked through accounting journal and ledgers quasi in the same way at the corporate and the individual level as shown in Alice ‘s efforts to assess her current situation ; each transaction has a relevant account …show more content…
So may it be ax deductions , food expenses , clothing etc… or an amount invested in securities for expected goods returns are all listed and counted to yield Net Cash Flow . In Alice ‘s case Net Cash Flow was just $400 as her first annual free cash flow that she will save for investment. Cash flow statement implies assigning a plus (+) or minus ( - ) sign to each amount following the purposes they have served . For instance , If I repaid a $300 on car loan and interest , this amount should be noted -$300 or (300) , while a $400 investment will be written as $300 , simply . And Assuming that those numbers were the cash – related transactions I made for the period , I would better off with a $100 Net Cash Flow to complete my so-called statement. The last , but not the least statement , is the Balance Sheet . As suggested by its name , the balance sheet statement’s primary purpose is to make sure that all assets ( things that can be used to create income , store wealth and value ) balance out with the sum of liabilities ( debts that can be utilized to create assets ) and equities ( One’s net worth) ( Siegel &Yacht, 2009 ) . For instance , if my