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How to Learn Accounting on Your Own: 15 Steps (with Pictures)
How to Learn Accounting on Your Own
Co-authored by Ara Oghoorian, CPA
Last Updated: January 31, 2023
Approved
Accounting, a meticulous recording of financial transactions, is a crucial process required
for the success of businesses both big and small. While large businesses will usually
employ a sizable accounting department with many employees (as well as doing business
with a separate auditing firm), smaller businesses may employ only a bookkeeper. In a
single-person business, the business owner may need to handle the accounting
themselves, without the help of a bookkeeper. Whether you're trying to manage your own
finances or are interested in finding work as a bookkeeper for another person's business,
learning the basics of accounting can help get you started.
Part
1
Part 1 of 4:
Developing Stronger Accounting Skills
Understand the difference between bookkeeping and accounting.
Bookkeeping and accounting are terms often used interchangeably. However,
the skills and responsibilities required of each are somewhat different.
Bookkeepers generally keep records of sales and record them in the books
directly. They do the day-to-day work of making sure every dollar the business
makes and spends gets recorded. An accountant, on the other hand, creates and
analyzes financial statements, and can also audit the business's books to ensure
accuracy and proper reporting.
1
Bookkeepers and Accountants may works in tandem to provide a full level of
service to a business.
In many cases, the distinction between the two is formalized by a professional
degree, state certification, or industry organization.[1]
Become familiar with creating spreadsheets. Microsoft Excel or other
spreadsheet software are invaluable to accountants, as they help you track
numbers in a graph or conduct calculations to create a finance spreadsheet. Even
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How to Learn Accounting on Your Own: 15 Steps (with Pictures)
if you know the basics, you can always brush up and learn intermediate or
advanced skills for creating spreadsheets, charts, and graphs.
Read books on accounting. Visit your local library to find books on
accounting, or purchase a book from the bookseller of your choice. Look for
entry-level books written by authors who have experience in accounting, as these
books will be more likely to contain researched information.
3
Introduction to Accounting, by Pru Marriott, JR Edwards, and Howard J
Mellett, is a widely used introductory textbook that is considered an excellent
primer for both general education purposes as well as for learners who intend
to specialize in accounting.[2]
College Accounting: A Career Approach by Cathy J. Scott is a widely used
college textbook for accounting and financial management courses. The book
also has the option of coming with a Quickbooks Accounting CD-ROM that
can be invaluable for aspiring accountants.
Financial Statements: A Step-by-Step Guide to Understanding and Creating
Financial Reports by Thomas R. Ittelson is a best-selling introduction to
financial reports, and may be a good first step for learners interested in
entering the field of accounting.
Take an accounting course. You can always look into courses at your local
community college, or take online courses in accounting for free. Try websites
like Coursera or other online education platforms to find free courses taught by
distinguished professionals in the field of accounting.
4
Not everything needed to be a great accountant can be learned in a course.
Part
2
Part 2 of 4:
Practicing Accounting Basics
Understand dual-entry bookkeeping. Accountants make two or more
entries for each transaction recorded by the business. These can be thought
of as an increase in one or more accounts and an identical decrease in one or
more other accounts. For example, a payment made for a sale previously made
on credit would result in an increase in the cash account and a decrease in
Accounts Receivable (money owed to the business by customers who have
purchased items on credit but not yet paid). These entries would be made for the
1
same amount (the amount of the sale).[3]
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Practice recording debits and credits. When dual-entry records are made,
they are done in the form of debits and credits. These represent whether or
not certain accounts are increased or decreased by a transaction. Using them is
relatively if you remember two things:
2
Debit means the record goes in the left side of the t-account and credit means
you should use the right side. This refers to a standard t-account journal in
which records are made on either side of the vertical portion of the "T".
Assets=Liabilities+Owner's Equity. This is the accounting equation. Memorize
this above all else. It works as a sort of guide to debits and credits. For the
portion left of the "=," debits increase the account and credits decrease it. For
the right side, the opposite is true.
This means that when asset accounts, like cash, are debited, they are
increased. However, when liability accounts, like accounts payable, are
debited, they decrease.[4]
Practice by working out how you would enter different common transactions,
like paying your electric bill or receiving a cash payment from a customer.
Set up and maintain a general ledger. The general ledger is where the
dual-entry transaction are recorded. Each individual record (the various debits
and credits in the transaction) is made in the relevant account within the ledger.
So, for a cash bill payment, an entry would be made in the cash account and
another, separate entry made in the accrued expenses account. This process is
greatly simplified when you use accounting software, but can also be done by
3
hand relatively simply.[5]
Distinguish between cash and accruals. A cash transaction is the type of
trade that occurs when a customer buys a pack of gum from the store and
you receive the payment on the spot, and then give them the gum in exchange.
Accruals, on the other hand, take into account things like credit, invoices, and
billing, rather than direct payment at the time of business, as well intangible
4
assets like goodwill.[6]
Part
3
Part 3 of 4:
Learning Financial Statements
Know how financial statements are created. Financial statements reflect
the current financial health of the business and its financial performance over
the last accounting period. The financial statements are created from the
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information contained within the general ledger. At the end of the accounting
period, each account is totaled up to create a trial balance. The total debits and
credits in all accounts should be equal. If they are not, the accountant must recheck the balances of each account and make adjustments or corrections where
necessary.
When the accounts are adjusted and correct, the accountant can enter
summaries of the information contained in them into the financial
statements.[7]
As you study financial statements, you should aim to be able to create them
on your own and be able to identify what all of the numbers on a certain
statement mean.[8]
Learn how to create an income statement. An income statement is the
most basic principle of accounting. It records a company's profit margins over
a specified duration of time, ranging anywhere from one week to one year. The
income statement is determined by two factors: the business's revenues and its
2
expenses.[9]
Revenue is the inflow of cash in exchange for goods and services earned
over time —though not necessarily the money actually paid to the company
over that period of time. Revenue may include cash transactions as well as
accruals. If accruals are included in the income statement, then the revenue
of a given week or month takes into account the invoices and bills that were
sent out during that time, even if the money will not be collected until the next
income statement's period. Income statements are therefore intended to show
how profitable a business was during that recorded period of time, not
necessarily how much money a business took in during that time.[10]
Expenses are any use of money to the company, whether due to the cost of
materials and supplies or labor/wages. Much like revenues, expenses are
reported during the period of time in which those expenses were incurred, not
necessarily when the company paid for those expenses.[11]
The matching principle of accounting requires a company to match related
expenses and revenues together whenever possible in order to ascertain a
company's actual profitability over the course of a given time period. In a
successful business this should more or less result in a cause-and-effect
relationship, where, for example, increased sales will increase the company's
revenue while also resulting in business-related expenses: an increased need
to buy more supplies for the store and an increase in expenses for sales
commissions, if applicable.[12]
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3
Create a balance sheet. Unlike an income statement, which deals with a
period of time, a balance sheet can be thought of as essentially a snapshot of
your business at one particular point in time.[13] A balance sheet has three
important components: the business's assets, liabilities, and the stockholder's or
owner's equity at a given point in time.[14] It may be helpful to think of the balance
equation in terms of a company's assets being equal to the company's liabilities
plus the owner's/shareholder's equity. In other words, what you have is always
determined by what you owe plus what is currently yours to keep.[15]
Assets are what a company owns. It may be helpful to think of assets as all of
the resources a company has at its disposal: namely, the vehicles, cash,
supplies, and equipment a company owns at that given point in time.[16]
Assets can be tangible (a plant, equipment) and intangible (patents,
trademarks, goodwill).
Liabilities are any amount that is owed to others at the time of the balance
sheet's creation. Liabilities can include loans that must be paid back, any
money that is owed for supplies given on credit, and any wages owed to
employees that have not yet been paid.[17]
Equity is the difference between the assets and the liabilities. Equity is
sometimes thought of as the "book value" of a company or business.[18] If the
company is a large corporation, the equity may belong to stockholders; if the
business is owned by one single person, then the equity is an Owner's
Equity.[19]
Generate a statement of cash flows. Essentially, a cash flows statement
specifies how cash has been generated and used by a business, as well as
that business' investing and financing activities, over a specified period of time.
The statement of cash flows is mostly derived from a business's balance sheets
4
and income statements for that same time period.[20]
Part
4
Part 4 of 4:
Learning the Principles of Accounting
Follow the generally accepted accounting principles (GAAP). The basic
principles that guide accounting practices rely on a set of principles and
assumptions designed to guarantee transparency and integrity in all business
transactions.
1
The Economic Entity Assumption is the requirement that an accountant
working for a sole proprietorship (a business where a single person owns the
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company) must maintain a separate ledger for business transactions that
does not include the business owner's personal expenses or transactions.[21]
The Monetary Unit Assumption is the agreement that economic activity, at
least in the United States, will be measured in US currency, and therefore only
activity that can be translated into US currency will be recorded.[22]
The Time Period Assumption is the agreement that all business transactions
will be represented in distinct time intervals, and that those intervals will be
recorded accurately. These intervals are typically relatively short: at the very
least an annual report is made, though reports are often made at weekly
intervals in many companies. The report must also specify when that time
interval began and ended. In other words, it's not enough to include the date
of the report; an accountant must clarify in that report whether the report
corresponds to one week, one month, one financial quarter, or one year.[23]
The Cost Principle refers to the amount of money spent at the time of a given
transaction, without taking inflation into account.[24]
The Full Disclosure Principle requires accountants to disclose relevant
financial information to any interested parties, particularly investors and
lenders. This information must be disclosed either in the body of a financial
statement, or in the notes at the end of that statement.[25]
The Going Concern Principle assumes that the company will remain in
operation for the foreseeable future, and requires the accountant to disclose
any information regarding the compromised future or certain failure of a
company. In other words, if an accountant believes the company will go
bankrupt in the foreseeable future, he is obligated to disclose that information
to investors and any other interested parties.[26]
The Matching Principle mandates that expenses be paired with revenues in all
financial reports.[27]
The Revenue Recognition Principle is an agreement that revenue will be
recorded as having occurred at the time the transaction is completed, not
when the money is actually paid to the business.[28]
Materiality is a guideline which grants accountants some degree of
professional judgment in determining whether or not a given amount is
insignificant to the report. This does not mean an accountant may report
inaccurately; rather, it addresses an accountant's decision to round to the
nearest dollar, for example, in reporting on a business's financial
transactions.[29]
Conservatism is a principle that advises that an accountant may report
potential losses for a business (in fact, he has an obligation to report such
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losses), but he may not report potential gains as actual gains. This is to
prevent investors from having an inaccurate picture of the company's financial
situation.[30]
Follow the rules and standards of the Financial Accounting Standards
Board. The Financial Accounting Standards Board (FASB) has laid out
extensive rules and standards which ultimately seek to ensure that interested
parties have reliable, accurate information, and that accountants work ethically
and report honestly. A detailed layout of the FASB's conceptual framework can be
found on the FASB website.
2
Follow the generally accepted industry practices. These are expectations
that working accountants have of other accountants, which help guide the
industry. They include:
3
Reliability, verifiability, and objectivity principles require accountants to report
on numbers that other accountants would agree on. This is both for the
professional dignity of the accountant and to ensure that any future
transactions are fair and honest.[31]
Consistency requires an account to be consistent in how he applies various
practices and procedures to a financial report. If, for example, a business
changes its cost flow assumption, the accountant for that business has an
obligation to report on that change.[32]
Comparability requires accountants to conform to certain standards, such as
the generally accepted accounting principles (GAAP), to ensure that one
company's financial reports can be easily compared to another company's
financial reports.[33]
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Expert Q&A
Question
What do I need to be a good accountant?
Ara Oghoorian, CPA
Certified Financial Planner & Accountant
Expert Answer
Strong analytical and problem-solving skills are important so you can develop
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Question
Can you do accounting by yourself with software?
Ara Oghoorian, CPA
Certified Financial Planner & Accountant
Expert Answer
Yes, but ne careful not to rely too much on your software to do your back-end
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Tips
Note that to become a licensed CPA (certified public accountant), you need
extensive college-level education in accounting- and business-related subjects,
and you'll need to pass the CPA Exam and the Professional Ethics Exam.[34]
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References
1. http://quickbooks.intuit.com/r/bookkeeping/whats-the-difference-between-abookkeeper-and-an-accountant/
2. http://trove.nla.gov.au/work/16405389?selectedversion=NBD22975854
3. http://www.accountingcoach.com/accounting-basics/explanation/5
4. http://www.accountingcoach.com/accounting-basics/explanation/5
5. http://www.investopedia.com/terms/g/generalledger.asp?layout=orig
6. http://www.investopedia.com/university/accounting/accounting3.asp
7. http://www.investopedia.com/university/accounting/accounting4.asp
8. Ara Oghoorian, CPA. Certified Public Accountant. Expert Interview. 11 March
2020.
9. http://www.accountingcoach.com/accounting-basics/explanation/2
https://www.wikihow.com/Learn-Accounting-on-Your-Own#:~:text=Take an accounting course.,in the field of accounting.
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How to Learn Accounting on Your Own: 15 Steps (with Pictures)
10.
11.
12.
13.
http://www.accountingcoach.com/accounting-basics/explanation/2
http://www.accountingcoach.com/accounting-basics/explanation/2
http://www.accountingcoach.com/accounting-basics/explanation/2
https://www.sba.gov/sites/default/files/Introduction%20to%20Accounting_Transcrip
t_0.pdf
14. http://www.accountingcoach.com/accounting-basics/explanation/3
15. https://www.sba.gov/sites/default/files/Introduction%20to%20Accounting_Transcrip
t_0.pdf
16. http://www.accountingcoach.com/accounting-basics/explanation/3
17. http://www.accountingcoach.com/accounting-basics/explanation/4
18. http://www.accountingcoach.com/accounting-basics/explanation/4
19. http://www.accountingcoach.com/accounting-basics/explanation/4
20. http://www.accountingcoach.com/accounting-basics/explanation/5
21. http://www.accountingcoach.com/accounting-principles/explanation
22. http://www.accountingcoach.com/accounting-principles/explanation
23. http://www.accountingcoach.com/accounting-principles/explanation
24. http://www.accountingcoach.com/accounting-principles/explanation
25. http://www.accountingcoach.com/accounting-principles/explanation
26. http://www.accountingcoach.com/accounting-principles/explanation
27. http://www.accountingcoach.com/accounting-principles/explanation
28. http://www.accountingcoach.com/accounting-principles/explanation
29. http://www.accountingcoach.com/accounting-principles/explanation
30. http://www.accountingcoach.com/accounting-principles/explanation
31. http://www.accountingcoach.com/accounting-principles/explanation/2
32. http://www.accountingcoach.com/accounting-principles/explanation/2
33. http://www.accountingcoach.com/accounting-principles/explanation/2
34. http://www.calcpa.org/cpa-career-center/cpa-requirements
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