Mastering Finance: Understanding the 7 Key Accounting Concepts
Learn how mastering 7 fundamental accounting concepts can help you easily understand financial statements and analyze a firm's financial performance. Explore the concepts of equity, liability, and more in this comprehensive video series.
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Video Transcript
Friends, welcome to video 8.
The title of this video is Accounting revolves around 7 concepts.
And that's really true.
If you master 7 concepts, which anyway are not very difficult, you can master financial
statements, you can master how to understand financial performance of a firm very very
easily.
So, let's move into those 7 concepts.
These 7 concepts are and I am going to talk about each one of them in greater detail not
only in this video but in later videos.
But let us quickly run through them.
One concept that we are already familiar with is equity.
We have learnt about it in previous videos.
There is another term liability which I am going to describe in greater detail in the
next slide.
If you remember the video
7a where we talked about how different resources are acquired. I had talked about the concept
of asset where we said that resources which are owned by us can be called as asset. I
am also then going to talk about four more concepts income, expense, inflow and outflow.
Sometimes people confuse between income and inflow or expense and outflow and let us get
those clear so that there is no confusion at all.
So friends, this is a framework where we can understand those 7 concepts.
In this slide I am going to explain 4 and in the later slide another 3, so put together
7.
Let's focus at the bottom combination of equity and liabilities and assets.
You may remember in one of our previous videos we had talked about.
how sources of funds help us to acquire resources.
This is what precisely we are talking about here.
Equity and liabilities help us to acquire assets.
Equity is the investor's money.
Liabilities is nothing else but debt,
the amount that we have borrowed.
But in addition, you may remember
we talked about indirect finance.
So even the money that we owe to vendors, customers,
would also be a part of the word liability.
We are going to discuss the word liability in greater detail in one of the later videos.
Assets you will remember in the last video we talked about assets are simply those resources
which are completely owned by us.
So asset is simply what we own.
What we own can be tangible, what we own can be intangible, what we own can also be in
the form of monetary or financial resources.
For example, the cash that we have in the business is also an asset.
The money in the bank account is our asset.
Money which is due from customers is also an asset.
Why?
We have a claim on the customer to that extent.
If we have given a
vendor advance
even to the extent of vendor advance we have a claim on the vendor.
So that is also our asset.
