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Financial Accounting

• Emphasizes a practical approach to financial accounting, specifically the meticulous adaptation of recording economic events and transactions.
• Enables learners to quickly grasp the accounting process and empowers business owners/managers to maintain proper accounts for informed decision-making.
• It introduces the reader to the discipline of accounting, covering generally accepted accounting practices, concepts, procedures, and techniques.
• Includes additional topics on branch accounting and budgeting, and incorporates accounting developments made since 2010.
• This edition serves as a useful resource for undergraduate university students studying intermediate accounting.

Nature and Purpose of Accounting

• The purpose of accounting is to maintain proper control of finances of a business through accurate recording, classifying, summarizing and communicating data.
• Accounting information, decision making, the uses of financial statements and accounting measurement are key components.

Meaning and Scope of Accounting

• Accounting involves reckoning or recounting economic activities in a summarized form to enable users to interpret financial data.
• The American Institute of Certified Public Accountants defines accounting as the art of recording, classifying, and summarizing money transactions and events of a financial character, and interpreting results.
• Events and transactions of a financial nature are recorded, reflecting their importance individually and collectively.
• The ultimate goal is to provide users of financial statements with the message encompassed within them.
• The accounting process/cycle contains steps of recording, classifying & summarizing to ending with the preparation of final accounts.

Further Definitions

• Book-keeping is a part of accounting where accounting is a part of accountancy.
• Accountancy refers to the systematic knowledge of accounting.
• Accounting is the actual process of preparing and presenting accounts.
• Bookkeeping focuses on record-keeping that is often routine and clerical.
• Accounting is broader, involving analysis and judgment at different stages.
• Distinctions exist in scope, stage, knowledge level, analytical skill, and nature of job between bookkeeping and accounting.

Further Information Handling

• Accounting involves recording, classifying, and summarizing past events, making it historical.
• Financial accounting aims to prepare statements revealing income and business financial position.
• Cost accounting classifies and analyzes costs based on functions, processes, products, etc.
• Management accounting processes data from financial and cost accounting for managerial decision-making.
• Accountancy records monetary transactions, ascertains earnings, identifies obligations, and facilitates financial decisions.
• Accounting replaces memory, complies with legal requirements, ascertains net results, facilitates decisions, facilitates comparative study, controls assets, settles tax liability, ascertains business value, raises loans, and acts a legal evidence.

Accounting Info As A System

• Accounting focuses on decision-makers by measuring, processing, and communicating financial information.
• Accounting acts as a conduit between business activities and decision-makers, measuring, storing, processing, and reporting data.

Financial Position and Accouting Equation

• Financial position refers to economic resources controlled by a company and claims against them.
• The accounting equation is Assets = Liabilities + Owners' Equity.
• Assets are economic resources expected to benefit future operations, classified as current or non-current.
• Liabilities are present obligations to pay, transfer assets, or provide services, classified as long-term or short-term.
• Owners' equity represents owners' claims to the business assets and equals the residual interest after deducting liabilities.

Assets

• Economic resources controlled by a business that are expected to benefit future opetations
• Can be described as monetary or non-monetary

Accounting Concepts

• Include the Money Measurement Concept (Records made only of information that can be expressed in monetary terms); the Cost Concept (Transactions generaly recorded at cost, not at market value); the Business Entity/Separate Entity Concept (business separate from owners); the Going Concern Concept (assumes business operations will continue); and the Auditng Period Concept (prep income statement).
• Also includes the Realization Concept (transactions recognized at the point of sale); the Matching Concept expenses must relate to the goods or services sold during the period); Duality or accounting Concept (money is always raised).
• Accounting conventions are based on practicability, custom, and are suject to change.
• Accounting conventions are based on Materiality (Accountant should attach importance to material details & ignore insignificant details); Prudence/Conservatism: (Profits are not recognized until a sale his been completed. In addition, cautious view is taken for future problems and costs of the busness); Consistency (once an entity decided of one method,it will treat all subsequent events of the same character in the same fashion); Full disclosure(accounting report show disclose fully & fairly the informatination they represent).

Financial Statements

• Financial statements provide information about a business’s financial position (Balance Sheet), performance (Income Statement), and cash flows (Statement of Cash Flows).
• The income statement summarizes revenues and expenses over a period, determining net profit or loss.

Measuring Business Transactions

• Involves identification of transactions and events; Accounting identifies transactions & events of a specific entity
• Accounting identifies transactions & events of a specific entity.
• A transaction is an exchange in which each participant receives or sacrifices value
• An event is a happening of consequences to an entity. After identifying, we measure those transactions & events in monetary terms & to Record them.

The accounting entry process depends on Recognition, valuation, and classification.

• The recognition issue refers to deciding when a business transaction should be Recorded. The predetermined time at which a transaction should be Recorded is the recognition point.
• The valuation issue focusess on assigning a monetary amount to a business transaction. iInternational accounting standards/ International Financial Reporting Standards indicate that the most commonly adopted value to assign to all business transactions are the original cost (usually called historical cost).
• The main point: Exchange price is an objective price that can be verified by agreement of the two parties, at which the transaction is Recorded.
• Classification implies assigning all the transactions in which a business engages to appropriate categories, or accounts.
• Accounts are basic storage units for accounting data to accumulate amounts from transactions. An accountings system has a separate account for each asset, each liability, and each component of shareholder’s equity e.g. profit loss.
• The general ledger/ledger is the group of company accounts.
• The chart of accounts is an often numbered numbered list of names correspoding.

Double-Entry System

• The key is to remember that dividends and expenses are deductions from shareholders’ equity.
• Thus means that information must be recorded in way that: Owners' Equity + Outside Liability =Assets
• This equation is known as the "Fundamental Accounting Equation".
• The accounting period is specified to be able to prepare the income statement for a business. The accounting period chosen is usually a calendar year.
• To determine profits and losses accrued in an accounting period, the expenses must relate to the goods or services sold during the peirod. The sale determines the costs, not the other war around.
• Accounts recognize transactions at point of sale or transfer orl ownership rather that when cash changes hands.
• The account recognise transactions.

Conventiona and Classifications

• Conventions are the methods of pocedure to emply generally by accountinf practice. Ex is dividing a centimeter in ten equal parts is a convention ,not a concept.
• Accounting includes those basic assumptions from which the cience of accountign is based, such as mone measuremtne concept, etc
• Accouting concepts includes a cost concept, going concern concept, etc
• These conentinos and concepts must be followed.

Economic resources and equities as elements of the accounting equation

• Financial position refers to the economic resources that are controlled by a company and the claims against those resources as at point in time. Another term for claims is equities: Economic resources = equities
• Every company has two types of equities, non-owners'(i.e. lenders' and creditors) equitics and owners' equity. Thus; Economic resources = non-owners' equities + owners equity
• . In accounting terminology, economic resources are called assets and non-owners equities are called liabilities. So the equation can be written like this:; Assets liabilities + owners equity

Kinds of Assets

• Non current assets are those that are acquired, created, and held in the business permanently. These represent investment of a long-term nature and none-current assets can further be divided into tangible or intangible assets.

Kinds of Transactions

• A transactionis an exchnage goods and services using money.
• Principles are Feasability Objective, and relevance and those are two catgeories: Accounting concepts and convention
• Concepts - Money Measurment, Cost ,business entity, Going Concern
• Accountign conventions: : Meteriality .Prudence/Conservatism,Consistency and Full disclosure

Financial accounting uses money measures to gauge the impact of business transactions.

• A transaction is an exchange using money involving independent partieies
• The concept of a separate enrity for accounting purposes.
• Accepted AccountingPrinciples , acceptance depends Relevance (results in information that is meaningful & useful) Objectivity: (ot reliable & trustworthy; Feasibility.)
• All transactions are recorded in terms of money and based off of the country the company operates in.

Communication and Limitations

• Financial sataements are the primary means of communicating impirtant information to users.
• Financial statements should be easily compared, relevant and relflect accuracy.
• Important qualititive characteristics are faithfulness relevancy and other useful infiormations Accounting has it's qualitative characteristics

Throughout

• The document outlines the key steps in bookkeeping process
• The document explains to to properly create a trail banace and how it all interelates.