Accounting typically seems very complicated which is the reason why the majority of people ignore this field completely. However, this is not the smartest decision as some basic knowledge in accounting will help us save, earn and spend money in a more reasonable way. What is more, basic accounting principles will help us understand our spending habits.
Basic accounting principles:
- Income statement. Your income is the amount of money you earn (or the revenue your company or business receives over a certain period of time). Keep in mind that depending on the country you live in, the taxes will either be deduced from your salary right away or you will need to fill out forms and pay taxes at the end of a certain period. Knowing how to deal with your taxes on your own is one of the most important skills nowadays.
- Cash flow statement. As it can be understood from its term, this is the flow of cash during a certain period of time. The cash flow statement consists of two elements: the cash-in-flow and the cash-out-flow. In addition, there are methods with the help of which you can calculate the cash flow: direct and indirect.
- The sales cycle. This term is related to the field of business. To specify, the sales cycle is the period of time that covers the selling of an item to a customer and receiving money from them for it.
- The purchase cycle. This term is also related to business, and it is used to describe the process of paying for an item and having that sum depleted from one’s bank account.
Speaking about the reasons why it is so significant to acquire basic knowledge in the field of accounting, they are as follows:
- You won’t get ripped off. We live in a world where one can buy pretty much anything they want. Yet, we obviously don’t want to purchase an overpriced product, especially when one has been saving money for it for a long period of time. For instance, you want to buy a car. That’s a big investment. There is absolutely no doubt about that. Having basic knowledge in accounting will help you better understand how the price for a product (in this case, a car) is formed, as well as where you can get a better deal.
- You will no longer be intimidated by your personal finances. It’s not a secret that a lot of people don’t have any savings nowadays. In the majority of cases, the problem lies in the inability to plan and to save even a small amount of money. Besides, lack of knowledge in accounting contributes to spending way more than one earns. Acquiring knowledge in this field will help you manage your finances better.
- You will be able to analyze current events. Have many times have you watched the news and heard something about a financial crisis or the economy of Venezuela and could not understand a thing? If that is the case with you, you will definitely benefit from acquiring some basic accounting knowledge. Surely, you don’t have to study the whole economic structure of Venezuela to figure out what is going on in their country. Covering the accounting basics will be enough for you to grasp the main idea. In addition to that, you will not be affected as soon as somebody tries to manipulate you because of lack of financial knowledge. The more you know, the harder it will be to fool you.
- You will be able to impress your boss. The fact that you work in a field that is quite different from accounting does not mean that you shouldn’t acquire some knowledge in this area as well. What is more, additional skills is the best way to impress your boss who will appreciate you more, and will most likely assign some more interesting tasks or even give you a raise! Besides, accounting is that kind of field everyone deals with, so knowing more will definitely come in handy more than once in your life.
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