![]() ![]() Profit indicates the difference between costs and revenues of a company. When a company sells its finished products, it receives a sum of money, a profit, that is, the revenue. The costs are expenses to be charged to the company for the purchase of necessary productive facts, such as materials and labor, which will allow the introduction of goods and services into the market. The Profit and Loss Account is an accounting document that shows a summary of a company's costs and revenues, highlighting the profit or loss for the year through the difference between costs and revenues and corresponding to the change in shareholders' equity. Shareholders' equity is the difference between assets and liabilities, and represents its internal sources of funding, as it comes directly or indirectly from the person or persons who set it up and promote it. The estate or gross capital is all the assets and liabilities at the disposal of a company. friends, acquaintances or other investors) as shares or quotas of the company's share capital. Debts for example are liabilities: a company has debts with suppliers, which will allow the company to continue the activity.Įquity capital includes assets brought by the founder or third parties (e.g. The liabilities indicate the source of capital invested in a company. For example, credits and properties are assets because the capital is invested. The assets show how the capital is used and invested, highlighting the use of the means available to the company. The balance sheet is divided into assets and liabilities. The balance sheet is the financial situation of a company at a certain point in time and must be provided by law. In this case the document number reported on the different lines will be the same because it is the same transaction. ![]() The document number is different for each record.Ĭomposed transactions, on the other hand, concern two or more accounts and must be recorded on more than one line, recording one account per line. Simple transactions are those that involve two accounts and are each entered on a single line. Simple transaction and composed transaction For example, if a company pays the goods to a supplier, the account of the cash will go in credit and the account of the supplier (counterpart), whose debt is extinguished, will go in debit. It indicates one or more accounts that balance the debit and credit. The counterpart is a double-entry accounting term. earnings, are recorded in the "credit" column.īelow you will find a list of terms that will help you get a better understanding of the double-entry accounting. Costs must be recorded in the "debit" column revenues, i.e. In addition to the balance sheet, there is the Profit & Loss Statement, represented by costs and revenues, referred to as income accounts. credits, properties, etc.), while the liabilities show where a company's funds come from (e.g. The assets show how the capital is used (e.g. The balance sheet indicates the balance sheet of a company's assets and liabilities in a given period and is organized into assets and liabilities. This is divided into two sections, namely the financial one (numerical accounts, such as the cash account), which corresponds to the balance sheet, and the economic one (income accounts). The set of all of a company's accounts is called the accounting plan. For example, the company pays several invoices through the bank: you will record the bank account from where the money comes out to pay the invoices, but at the same time you will indicate the accounts of what has been paid (electricity, gas, rent) and which represent the counterparts.įor this reason, double-entry entries should be recorded in two columns, debit and credit. When recording a movement, it is necessary to record on two or more accounts. The double-entry method involves a double entry, on at least two or more accounts, to simultaneously record what is happening from a monetary/financial and economic point of view. Double-entry accounting, on the other hand, is more complex and particularly concerns companies that need to have professional accounting with more details, or because they are required by law to keep their accounts with the double-entry system. The simple accounting consists of recording the income and expenses of one or more accounts. ![]()
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