Accounting Definition and Objectives

Accounting Definition and Objectives

• Accounting is the process of recording, classifying, and reporting financial information of a business or organization.
• The primary objectives of accounting are:
  • To provide financial information for decision-making
  • To measure business performance and profitability
  • To ensure accountability and transparency

Accounting Branches

• Financial Accounting: focuses on preparing financial statements for external users (e.g., investors, creditors)
• Managerial Accounting: focuses on providing financial information for internal decision-making
• Cost Accounting: focuses on determining the cost of goods or services produced
• Auditing: focuses on examining and verifying financial statements

Accounting Equation

• Assets = Liabilities + Equity
  • Assets: resources owned or controlled by the business
  • Liabilities: debts or obligations owed by the business
  • Equity: ownership interest in the business

Accounting Principles

• Accrual Principle: revenues and expenses are recognized when earned or incurred, not when cash is received or paid
• Matching Principle: expenses are matched with revenues in the same period
• Materiality Principle: information is disclosed if its omission or misstatement could influence investor decisions
• Consistency Principle: accounting methods are consistent from one period to another

Financial Statements

• Balance Sheet: presents the financial position of the business at a specific point in time
• Income Statement: presents the revenues, expenses, and net income of the business over a specific period of time
• Cash Flow Statement: presents the inflows and outflows of cash over a specific period of time

Accounting Standards

• Generally Accepted Accounting Principles (GAAP): a set of rules and guidelines for financial accounting and reporting
• International Financial Reporting Standards (IFRS): a set of rules and guidelines for financial accounting and reporting used internationally

Accounting Overview

• Accounting is the process of recording, classifying, and reporting financial information of a business or organization.

Objectives of Accounting

• Provide financial information for decision-making
• Measure business performance and profitability
• Ensure accountability and transparency

Branches of Accounting

Financial Accounting

• Prepares financial statements for external users (e.g., investors, creditors)

Managerial Accounting

• Provides financial information for internal decision-making

Cost Accounting

• Determines the cost of goods or services produced

Auditing

• Examines and verifies financial statements

Accounting Equation

• Assets = Liabilities + Equity
• Assets: resources owned or controlled by the business
• Liabilities: debts or obligations owed by the business
• Equity: ownership interest in the business

Accounting Principles

Accrual Principle

• 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 Principle

• Discloses information if its omission or misstatement could influence investor decisions

Consistency Principle

• Uses consistent accounting methods from one period to another

Financial Statements

Balance Sheet

• Presents the financial position of the business at a specific point in time

Income Statement

• Presents the revenues, expenses, and net income of the business over a specific period of time

Cash Flow Statement

• Presents the inflows and outflows of cash over a specific period of time

Accounting Standards

GAAP (Generally Accepted Accounting Principles)

• A set of rules and guidelines for financial accounting and reporting

IFRS (International Financial Reporting Standards)

• A set of rules and guidelines for financial accounting and reporting used internationally

Understand the definition and objectives of accounting, including financial information for decision-making, measuring business performance, and ensuring accountability.