Accounting Basics

Definition and Purpose

• Accounting is the process of recording, classifying, and reporting financial transactions and events of a business.
• The primary purpose of accounting is to provide stakeholders with financial information to make informed decisions.

Accounting Equation

• Assets = Liabilities + Equity
• This equation represents the relationship between a company's assets, liabilities, and equity.

Types of Accounting

• Financial Accounting: focuses on preparing financial statements for external users (e.g., investors, creditors).
• Managerial Accounting: focuses on providing internal decision-making information for management.

Financial Statements

• Balance Sheet: presents a company's financial position at a specific point in time.
• Income Statement (Profit & Loss Statement): presents revenues, expenses, and net income over a specific period.
• Cash Flow Statement: presents inflows and outflows of cash over a specific period.

Accounting Principles

• Accrual Accounting: recognizes revenues and expenses when earned or incurred, not when cash is received or paid.
• Matching Principle: matches expenses with revenues in the same period.
• Materiality: requires disclosure of information that could influence investment decisions.
• Consistency: requires consistent application of accounting methods and procedures.

Accounting Standards

• Generally Accepted Accounting Principles (GAAP): a set of rules and guidelines for accounting practices in the United States.
• International Financial Reporting Standards (IFRS): a set of global accounting standards.

Accounting Roles

• Accountant: responsible for recording, classifying, and reporting financial transactions.
• Auditor: examines and verifies the accuracy of financial statements.
• Financial Analyst: analyzes financial data to provide insights for business decisions.

Accounting Overview

• Accounting is the process of recording, classifying, and reporting financial transactions and events of a business.
• The primary purpose of accounting is to provide stakeholders with financial information to make informed decisions.

Accounting Equation

• The accounting equation represents the relationship between a company's assets, liabilities, and equity.
• Assets = Liabilities + Equity.

Types of Accounting

• Financial Accounting focuses on preparing financial statements for external users, such as investors and creditors.
• Managerial Accounting focuses on providing internal decision-making information for management.

Financial Statements

• The Balance Sheet presents a company's financial position at a specific point in time.
• The Income Statement (Profit & Loss Statement) presents revenues, expenses, and net income over a specific period.
• The Cash Flow Statement presents inflows and outflows of cash over a specific period.

Accounting Principles

• Accrual Accounting recognizes revenues and expenses when earned or incurred, not when cash is received or paid.
• The Matching Principle matches expenses with revenues in the same period.
• Materiality requires disclosure of information that could influence investment decisions.
• Consistency requires consistent application of accounting methods and procedures.

Accounting Standards

• Generally Accepted Accounting Principles (GAAP) is a set of rules and guidelines for accounting practices in the United States.
• International Financial Reporting Standards (IFRS) is a set of global accounting standards.

Accounting Roles

• An Accountant is responsible for recording, classifying, and reporting financial transactions.
• An Auditor examines and verifies the accuracy of financial statements.
• A Financial Analyst analyzes financial data to provide insights for business decisions.