Form 1099 Requirements and Contractor Payments

IN THIS LESSON

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The learning points or topics covered in this portion of the video include:

Accounting is the simplest way to summarize financial data, including revenues, expenses, and assets, into a meaningful and easily understandable format.
The five main components of accounting are assets, revenues, expenses, liabilities, and equity.

An asset is an item that has a future value.
Liabilities are what you owe.
Revenues can be sales (for a retail store) or fees (for a service organization).
Expenses are common to most organizations, such as office expenses, rent, or mortgage expenses.
Equity is the difference between your assets and your liabilities.

The accounting equation is that assets must always equal liabilities plus equity, and it has to be balanced.

The accounting process always starts with a source document. A source document can be a voucher, an invoice, or an agreement.
Once the source document is available, a journal is recorded.
The way information is recorded will determine if the financial statements are correct.
A common example involves a debit and a credit. An expense (like a supply expense) will be a debit. If this expense is put on a credit card, the credit card is a liability until it's paid, and the amount will show up as a credit on the credit card account.
The normal account balance for an asset is a debit. A credit balance in an asset account, such as cash, suggests that you paid for something without having enough money.
The normal side of liabilities is a credit. A debit transaction in a liability account would prompt the accountant to ask questions.
It is important to understand your cash position at all times before paying for something. If you keep paying every expense with credit, the liability will grow and may balloon to a point where you don't have enough cash to pay it.