You can teach yourself the essentials of accounting without having to sit in a classroom. With a standard introductory accounting text book that you can find at most public libraries, you can study the basic principles which guide the work that professional accountants do each day. As you read about accounting concepts, it’s helpful to review a set of sample financial statements that show how accountants apply these principles.
Things You'll Need
- Introductory accounting textbooks
- Samples of financial statements
Start by looking up the phrase “GAAP” which stands for “generally accepted accounting principles.” Know that the rules which make up these principles are standards used by the Financial Accounting Standards Board (FASB) and the Accounting Principles Board (AFB); the rules practiced by professional accountants; and general accounting guidelines found in most textbooks.
Learn the principle of economic entity assumption. Understand that a client and his business are considered two separate entities. This rule prohibits accountants from combining a client’s personal and business transactions.
Find out how the U.S. government measures economic activity. Read about why the U.S. dollar’s consistent purchasing power allows accountants to ignore the effects of inflation when they record transactions in U.S. dollars.
Pay attention to the cost principle. Know that accountants use the term “cost” to refer to the amount a consumer spends when a product is first purchased. Find out how this principle explains why the costs listed on financial statements are termed “historical” accounts.
Know how the full disclosure principle explains why accountants attach many pages of footnotes to their statements. This principle requires accountants to include in financial statements any information that an investor would find significant to his review of the statements.
Research the matching principle, which calls for a matching of expenses with revenues. Look at a sample sales commissions expense report to see how the amounts are recorded only when sales are finalized rather than when commissions were satisfied.
Understand the revenue recognition principle, which states that accountants should recognize revenue when a product was sold even if the product was not yet paid for. Understand how this principle allows a company that earned revenue on a certain day to report a zero cash flow for that day.
Consider the principle of materiality. It relieves accountants who exercise good judgment to overlook other accounting rules when the amounts at issue are not significant. Then find samples of financial statements containing numbers that were rounded off to the nearest dollar. Read how companies are allowed to record statements this way if they can show they are using a product over a period of years and must show its true expense over time.
Complete your self-introduction to accounting by learning about conservatism, which allows accountants to make objective conclusions when they must choose between two or more options that seem valid. Accounts consider which option will produce more income and not create more loss.