Why Learn the Language of Business?
Like any language; the better you speak it, the better you are able to communicate to get what you want. Accounting is the language of business. Learning the language of business will allow you to:
- Cost your products and services for profitability and success
- Read your business financial statements to know the value of your business and the profitability of the business for a period
- Communicate with other professionals about your business
- Understand all aspects of your business' record keeping and know it is correct
How to Learn the Language of Business:
Since the language of business is so important, I have simplified the language into two easy steps that I have used to teach students and business owners alike! Whether you are a student, a bookkeeper, professional, executive or business owner: learning these basics so that you can speak the language, will allow you to excel.
The change won't happen over night, but if you stick with it, you will get the results you are looking for! uTDu has made accounting easy for hundreds and is here to help, every step of the way!
The following two steps are the building blocks of the business language: ACCOUNTING. I recommend memorizing the Account Types and their Normal Balances, by following the diagram at the top and bottom of the blog!
Step #1 Learn the Six Account Types
Every thing that happens in your business is recorded in accounts and every account has an account type. There are six main types of accounts: Assets, Liabilities and Owners Equity (OE), within OE is Capital, Drawing, Revenue and Expenses. See the diagram below, which includes definitions of each account type and examples of these accounts:
Step #2 Learn Debits & Credits
This last step combines the account types with debiting and crediting accounts, to record business transactions in the accounting records.
Debits and credits are not nearly as complicated as you may think. Debits simply means left and credit means right. That's it! Memorize it. When a transactions occurs in the business (Ex. you pay a supplier for products you purchased), use a journal entry to debit and credit accounts to increase or decrease the account balances in your records.
For half of the account types (Assets, Expenses, Drawing), debits increase the accounts and credits decrease the accounts. For the other half of the account types (Liabilities, Revenue, Capital), it's the opposite: debits decrease the accounts and credits increase the accounts. "T-accounts" are used in the accounting industry to draw a picture of an account and look at how journal entries, which debit and credit the accounts to record transactions, will affect the account balance.
The diagram below summarizes this information. This diagram is CRUCIAL. Write it down a few times and memorize it! The more you know this information, the more you will understand the language of business!