What is basic accounting?

According to American Institute of Certified Public Accountants (AICPA), accounting is “the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof.”

Basically, accounting is the process of identifying, measuring and communicating economic information so a user of the information may make informed economic judgments and decisions based on it.

From the definition above, there are three important activities in the accounting process, namely identifying, measuring and communicating. Read more

What is the difference between a cost and an expense?

So what’s indeed the difference between the two income statement accounts? Before we try to answer that question, we will first try to discover why this question existed anyway? Actually, we try to differentiate two things when they seem to be they same and we can’t figure out their differences. So what are their similarities? Cost and expense both sounds unfavorable elements of income statement since they both cause a decrease to net profit. In the accounting equation, the two are also naturally debit accounts (meaning they increase when debited and decrease when credited). Cost and expenses also cause an outlay in cash or an increase in liability when obtained. For example, a purchase of equipment causes cash outlay when purchased on cash payment and causes an increase in liability when purchased on account. The following is a list of some similarities between a cost and an expense. Read more