February 2, 2019 0

UK Accounting 101: Learn the Basics Quickly

UK Accounting 101: Learn the Basics Quickly

Accounting is a part of everyone’s life. There is accounting in everything that we do. We use it everywhere but don’t realize its presence. But how many of us do appreciate its presence and learn a thing or two about it theoretically?  Only a fair chunk of people when the tax season approaches. So, let us learn the basics of accounting today and give meaning to the so-called accounting jargons in our minds.

There are certain basic rules to bear in mind when it comes to accounting. These rules would form a basis to all the concepts (simple to complex) in accounting.

Rule 1 – Accounting is nothing but covering or tallying credits and debits.

That simple. It basically consists of debits and credits. It is the process of recording the financial transaction of a business using debits and credits. Any other definition in the world, no matter how complex, conveys the same meaning.

Rule 2 – Debits are always equal to Credits.

This means the value of debit entries in account statement is always equal to the value of credit entries. Debits and credits are being used in the accounting system for centuries. These entries are used in bookkeeping to track all transactions in a statement. To understand this rule even better, we need to know more about Debits and Credits.

What are Debits?

Debit is usually an entry recording of an expense or a sum of money owed. It is an amount of money paid from an account to acquire any assets. In bookkeeping, debit entries are usually made on the left. Basically, debit entries usually consist of Assets and Expenses.

Assets – They are things that an individual or a business owns. E.g. Cash, Realty etc

Expenses – Spending for acquiring goods or services. E.g. Paying rent, electricity etc

What are Credits?

Credit is usually an entry recording of the outstanding amount that is due to a creditor. It is the amount of money that is to be paid to an entity. In bookkeeping, credit entries are usually made on the right. Credit entries consist of Liabilities and Sales.

Liabilities – They are things or money that is owed to someone or some entity. E.g. A student loan or a credit card purchase etc

Sales – Money obtained by the sale of a product/service. An exchange of money for goods or services. E.g. Revenue earned by a company.

In an account statement, the value of the sum of debit entries is always equal to the sum of the value of debit entries.

Let us consider a trivial example of transactions made in a day by an individual.

S. No

Entry

Debit

Credit

1.

Paying rent (Expense)

£ 800

2.

Buying groceries using the credit card (Liability)

£ 150

3.

Credit in Bank account for rent (Liability)

£ 800

4.

Paying for the credit card for groceries (Expense)

£ 150

Total

£ 950

£ 950

Here both debit entries and credit entries are equal. Hence balanced.

Basic software used in accounting

Let us know about some of the software used for accounting. Microsoft Excel has been used and still being used for accounting in many places. But there are many advanced and tools dedicated to accounting in the market. Software like QuickBooks, Sage, and Xero are most sought after tools which simplify the accounting process.

Tax filing and self-assessment

Learning the basics of accounting would help a great deal in understanding the account statements which in turn would help in understanding tax filing and self-assessment of tax returns for individuals and businesses

Finding an accountant

For filing complex tax returns, one can find an accountant in the UK and seek help from them.  Click here to know about choosing the right accountant for your business.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Newsletter
Advertise with us
Advertise with us
Recent Articles
Categories

To get listed as our Recommended Advisor,
Register here



Submit a post and start writing for us
Submit a Post here

Chekin Videos
Follow & like us :)
RSS
Follow by Email
Facebook
Facebook
Google+
https://blog.chekin.co.uk/uk-accounting-101-learn-the-basics-quickly">
LinkedIn
© Copyright @ Checkin 2018                                                                                                                                                                               [email protected]
Bitnami