Buy a book that teaches accounting. To learn accounting the easy way, you'll need a reference. You should look for a book that explains each accounting concept clearly and concisely.
Create a hypothetical business to use as a model. For example, you may decide to use a clothing store. To remain in business, the clothing store needs to make more money than it spends.
Understand the concepts of revenue and cost within a business. Revenue is the amount of money that the business receives, while the cost is the amount of money that the business has to spend. On a sheet of paper, create a table with two columns. Label the columns "Revenue" and "Cost." For example, if the clothing business makes $400 in revenue and spends $200 for costs, you calculate the net income by subtracting the costs from the revenue. Therefore, the net income is $200.
Differentiate between operating activity, investing activity and financing activity. To understand these accounting terms, apply them to the business's actions. The operating activity involves the money that the clothing company pays to employees and receives from customers. For example, if the company pays a total of $100 to employees and receives $200 from the customers, you subtract the former from the latter to get the operating activity amount. The investment activity is the amount of money the business puts into company purchases. For example, the clothing business may invest $300 in imported clothing. The financing activity refers to the amount that the business invests in other businesses. For example, the clothing company may invest $500 in a craft company.
Make a table of cash flow for the business. This is the amount of money that comes in and out of the business during a given time period. Create a table with two columns and four rows. Label one column "Activity" and the other "Amount." In the "Activity" column, write "Operating," "Investing" and "Financing." For example, the clothing business may have $100 for operating activities, $300 for investing activities and $500 for financing activities. To calculate the cash flow, subtract the operating activities from the financing activities. Then subtract the investing activities from this answer. The final answer should be $100.
Create a balance sheet for the business. A balance sheet is composed of assets, liabilities and owner's equity. Make a two-column table, with the assets on the right and the liabilities and owner's equity on the left. When you make a balance sheet, you need to make sure the assets equal the addition of the liabilities and owner's equity. For example, if the clothing business had $700 in assets, $500 in liabilities and $200 in owner's equity, the company is in balance.
To understand accounting better, create financial statements that correspond to other businesses. Read about different types of businesses. Recording the financial information about these other businesses will enable you to understand why accurate accounting is essential and why some businesses are more successful than others. For example, a company that does not have a balanced balance sheet is not doing well.