BASIC ACCOUNTING PRINCIPLE

In order to
manage a business
effectively from
the financial
perspective, it is
always important
to measure: (1) how many assets
there are; (2) how much profit is
being generated; (3) when the
cash is coming in, and (4) how it
is being spent.
Accounting is nothing more
than the measurement of
these processes to reflect
what has happened to a
business over a relevant
period of time . The asset piece
is measured by the Balance
Sheet, whilst the profit and cash
pieces are measured by the
Income Statement / Profit and
Loss Account and the Cash Flow
Statement respectively.
A good financial analyst should
be aware of these simple facts,
which are essential for any
financial modeling exercise. We
provide a primer on basic
accounting principles in this
article. Also read the Glossary of
Accounting Terms for a run-
down on the key terms and
terminology used in accounting.