This is good, you have started to learn accounting basics before learning its advance concepts. But do you know what are the three main accounting mistakes which do accounting students?
Mistake #1. Believing that Purchase of everything goes to Purchase account
When you start to pass the journal entry first time, you think that everything purchase will go to purchase account. Yes, both buying of goods and buying of any other asset will increase your resources but to show purchase account for purchase of anything is mistake because purchasing of goods is revenue expenditure but purchasing of any fixed asset is capital nature item. If we add all the purchase in purchase account, our fixed assets will decrease in our balance sheet. Due to this, our balance sheet will not show correct financial position. We just write purchase account for purchasing of goods in which we deal. If you have bought shares as your long term investment, it will be your fixed asset but if you have bought share for selling next day, it is your product and you can show it as purchase in your journal entry. If you do this mistake, it means, it is your principle error.
Mistake #2. Drawing is not Business Use of Fund
Whether employee takes money for personal use or owner uses money for personal use, it is said that it is not business use of fund. This fund must be recorded as per rules. Personal use by owner is decrease of capital. It should be debited and cash or goods or anything which goes from business must be credit. If you have bought furniture for personal use. We can not say furniture account debit to cash account because business can not use the furniture. It is just decreasing of capital and we will write drawing account debit and cash account credit in our journal.
Mistake # 3. Individual and Partnership is different from Company Business
In accounting, you treat company as individual and partnership, it will be your mistake. In individual and partnership, capital is only of owner or partners. So, we need only to record his or their capital. But in company, we need to record every bought share of company. Total of this will be our paid up capital. We also make reserve and surplus account in which we have to keep our retained earning after giving dividend to shareholders.
Related : What are Accounting Basics?