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1. Financial vs. Managerial: Accounting has two main disciplines: managerial  is the one you useinternally for keeping track of things and financial is the one you present externally to investors, banksand the government. For instance, in your managerial accounting you will enter the day-to-day expensesand sales, while your financial accounting will be a summary of all those transactions.

. Double entry book-keeping: !very transaction must be entered in two accounts and these musteventually balance. "his ensures that you are on the right track. Although accounting is as old as humancivili#ation, double entry book-keeping was invented only in the 1$th century. Fundamentally, all anaccountant does is balance the books - make sure all the transactions are entered in two accounts andthey all eventually balance %like the last line in the image below&.

'. Assets & Liabilities. "hese are the foundations of accounting. Assets include everything you own -your home, car, factory, e(uipment)s are all your assets. *iabilities include everything you owe - thisincludes all your loans. A lot of transactions involve increasing both. For instance, when you buy a homewith a loan, you increase both your assets and liabilities.

4. Equity. "he gap between assets and liabilities is your fundamental worth - e(uity. For instance, if youown a car worth +1, and your auto loan balance is only +', your e(uity on the car is +1, -+' +. /f your overall e(uity is less than #ero, that means you are broke.

Equity = Assets - Liabilities

. !re"it vs. Debit. "his is the yin 0 yang of accounting system. Credit %r& is an entry that increasesyour liabilities and debit %2r& is an entry that increases your assets. 2ebit in general means adding apositive number to an account and redit in general means adding a negative number. redit istraditionally written on the right side of a ledger, and debit is usually written on the left side of a ledger.

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#. Le"ger. "he image that you see above is a part of a ledger. A ledger is a principal book, where youenter the money transactions in the format above. ompanies typically keep ' types of ledgers: $eneralLe"ger - for keeping track of all expenses, income, assets, liabilities and e(uity, %ales Le"ger - forkeeping track of customers who have purchases, but not yet paid for their goods and  urc'ase Le"ger -for keeping track of all purchases we have made for which we have not paid yet.

From the ledger, we create financial statements that summari#e a company3s overall position./nternational standards mandate companies to keep four main types of financial statements.4ee: Financial statement

(. )alance s'eet - "his is the snapshot of a business. /t states how much assets are there in variouscategories %bank accounts, buildings, e(uipment and the amount you need to receive from yourcustomers&, how much liabilities are there in various categories %short term loans, long term loans,amount you need to pay your suppliers& and the overall o*ners'ip equity - how many shares of thecompany are held and how much money was got from the owners.

+. ,ncoe stateent - "his records the incomes and expenses in various categories. For instance,following is a part of oca ola3s income statement.http:55www.thecoca-colacompany.c...  6ou can see that

they have made +$7,8$ million %top line& in 11 and are left with a profit of +97'$ million %bottom line&.iven that the profits are written in the bottom-line, you have this common expression bottom-line thatrefers to the final results, while topline is used to show the overall sales that a company makes.

. !as' /lo* stateent - /f you have run a business, you know that cash is the king 0 it is very important

to understand how a business manages its cash. For instance, if you have made a sales of +1 million,

but none of your customers have repaid yet, you can no longer afford to be happy that you have made

+1 million in sales. "he cash flow statement records how a company got and spent its cash. "he cash

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flow statement shows whether the company is growing its cash and how it is spending the cash %new

e(uipment, repaying loans, paying more wages, etc.&.

01. Accounting is not an e2act science. Accounting, contrary to popular perception, is not an exact

science but involves a lot of ;udgment. For instance, if ' of your customers have not paid in 7 months, you

must decide if you have to keep them in the account receivable or write it off. Also, you are re(uired to

understand tax policies, how inventories are increasing5decreasing in prices and what is the lifetime of the

assets you are own.