Free Accounting Textbooks

Made available to students from the Center for Open Education –Free textbooks on

  • Financial Accounting
  • International Finance: Theory and Policy
  • Introduction to Financial Accounting
  • Managerial Accounting
  • Money and Banking
  • Personal Finance

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What is the order in which accounting is done?

Answer by Peter Baskerville:

Here are some visuals to add to the excellent answers already given. Accounting is no different to any other system which has inputs, processes and outputs.
  • The inputs in accounting are the financial transactions: events that have a monetary impact on an entity's financial position
  • The processes in accounting include the double-entry bookkeeping: processing the fact that every transaction has will impact on at least two ledger accounts and that the debits will equal the credits for every entry.
  • The outputs in accounting are the financial statements: summarising the financial activities and reporting on the financial performance and financial position of the enterprise.

This basic systems process can be broken down further into steps:

Where ….

  • Financial Transaction – events that have a monetary impact on an entity's financial position
  • Source Document – original record containing the details to substantiate a transaction entered in an accounting system.
  • Accounts classified – data on the source document is classified by account type
  • Journals – Debit & Credit – the books of original entry where each financial transaction is recorded on a date and time basis and where the debits equal the credits for each transaction. (Separate sales and purchases journals may be kept to record the details of the individual debtors and creditors respectively)
  • Posted – the process of transferring date/time entries from the journal to the account groups and types in the ledger.
  • Ledger Accounts – contain the balances of all the accounts relating to a company's assets, liabilities, owners' equity, revenue, and expenses. (Separate debtors and creditors accounts may be kept to maintain the money owed by individual debtors and the money owed to individual creditors) Note: These subsidiary ledgers must be reconciled with the control account in the general ledger before financial reports can be prepared.
  • Trial Balance (debit=credit) – is designed to check the accuracy of the general ledger and ensure that all postings to the ledger observed the rules of double-entry bookkeeping.
  • Adjusted Trial Balance – is prepared after adjusting entries are made and posted. Recording adjustments relating to writing off bad debts, calculating depreciation and recognising prepaid expenses and unearned income.
  • Financial Statements – summarising the financial activities and reporting on the financial performance and financial position of the enterprise.

After the financial statements are completed and distributed, post closing entries are journalised and a post closing trial balance is prepared in preparation for the next accounting period.

What is the order in which accounting is done?

10 Videos explaining Basic Accounting Concepts

Let’s Tute is an E-learning platform with a goal to provide quality education by simplifying concepts based on various aspects of Accountancy thereby making …

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Free accounting course

Learn accounting understand business
001 Introduction to the Course
002 Basics of Accounting
003 Cash Vs Accrual Basis
004 Accounting Cycle
005 Managing Inventory
006 Accounting for Sales
007 Reconciling Cash
008 Accounting for Payroll
009 Breaking Down the Balance Sheet
010 DepreciationAmortization
011 Trial Balance
012 Adjusting Entries
013 Preparing Financial Statements
014 Wrapping up the Accounting Cycle
015 Ratio Analysis

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Accounting Fundamentals

A playlist of 43 videos on Accounting Fundamentals by the CPA Bob Steele

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Learn Accounting in 30 Minutes or Less!

The ultimate accounting video for non-accountants.

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50 Accounting Videos

Over 50 videos explaining the basic accounting concepts.

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AccountingFlash creates iPhone and iPad apps to teach accounting fast. Apps strive to engage every sense: Visual, audio, and tactile. You tube videos are designed to supplement apps and help you learn Accounting concepts such as debits and credits, assets, liabilities, equity, financial statements, FIFO, LIFO, and the accounting equation are covered. Accounting Flashcards are used for on the go learning.

How can I calculate annual depreciation?

Answer by Peter Baskerville:

Depreciation is a recognition in the books of a business of the loss in value of its fixed assets that occurs over time due to obsolescence, wear n' tear and old age.

Now rather than write off all the asset value against the final accounting period where the asset is finally thrown out and replaced, the accounting system (supported by government tax departments) allows the business to write off the value of the asset gradually over the period where it was used to generate revenue.

In doing so, the accounting system is upholding an important principle in relation to reporting a fair view of the financial performance and position of the business. This principle is known as the 'matching principle' where the revenue for each accounting period should be matched against the costs incurred in earning that revenue and the loss in value of fixed assets (depreciation expenses) is one of those costs that should be included in each accounting period.

Because not all assets lose value at the same rate (i.e. computers vs buildings), various depreciation methods have been developed to write off the value of the assets in a fair an equitable way. But depreciation expense calculations have tax implications, so Governments usually only allow certain methods of depreciation to be adopted by businesses for tax purposes.

The most common depreciation method used by business and accepted by Governments is the Straight Line Method.

The Straight Line Method of depreciation calculates annual depreciation with the formula:

Depreciation Expenses = value of the asset (purchase price) / Useful Life of the Asset.

So if you purchased a truck for $20,000 and it had an estimated useful life of 10 years, then the annual depreciation expense would be calculated as = 20,000 / 10 = $2,000 depreciation expense per year.

Another adjustment to this formula occurs if the truck has some 'salvage value' at the end of its useful life. i.e. it could be sold for $2,000. In this scenario, the depreciation value would be first reduced by $2,000 in salvage value and then divided by the useful life. So the formula changes to: (20,000 – 2,000) = 18,000 / 10 = $1,800 depreciation expense per year.

Other methods of calculating depreciation expense are described well here Depreciation Methods and include:

  • Declining-balance: An accelerated method of depreciation, it results in higher depreciation expense in the earlier years of ownership.
  • Sum-of-the-years’ digits: Compute depreciation expense by adding all years of the fixed asset’s expected useful life and factoring in which year you are currently in, as compared to the total number of years.
  • Units-of-production: The total estimated number of units the fixed asset will produce over its expected useful life, as compared to the number of units produced in the current accounting period, is used to calculate depreciation expense.

How can I calculate annual depreciation?

Learn accounting in 30 minutes – and have fun! Accounting for non-accountants

Entertaining and informative. You truly will be able to prepare a simple set of books after watching this short video!

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Basic Accounting part 2 – YouTube

Pennsylvania Institute of Technology HUM130: Society and Finance Basic Accounting Principles Part 2

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