The income statement presents information over a period of time. This time period is referred to as an accounting cycle. Most small businesses use a monthly cycle for regular reporting purposes and an annual cycle for reporting to outside creditors and the government.
There are six account types used in accounting. They are assets, liabilities, equity, revenue, cost of sales and expenses.
Debits and credits are two words that are the most recognized terms synonymous to bookkeeping and accounting. I have read over 30 different articles as to how other authors define debits and credits with bookkeeping. Several authors try to get the reader to visualize the terms as the left side and the right side of the ‘T’-Account (I also describe this in Lesson 2).
In accounting the term dual entry is used often. Other names include Double Entry and Offsetting Entry. It refers to the process of entering an economic transaction as an equation. Remember in math an equation refers to a two sided mathematical statement. Examples include 4= 2 X 2 or more complex equations such as E= MC squared.
To fully grasp the concept of accounting a bookkeeper must accept that there are six (6) different types of accounts. All the reports, ledgers, journals and entries revolve around these six types of accounts. Bookkeeping is the function of entering data based on the economic transaction into the respective type of account.