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Questions and Answers
What is the primary objective of accounting?
What is the primary objective of accounting?
What type of accounting focuses on preparing financial statements for external users?
What type of accounting focuses on preparing financial statements for external users?
What is the accounting equation?
What is the accounting equation?
What principle states that revenues and expenses are recognized when earned or incurred?
What principle states that revenues and expenses are recognized when earned or incurred?
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What financial statement presents the financial position of the business at a specific point in time?
What financial statement presents the financial position of the business at a specific point in time?
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What is the purpose of Generally Accepted Accounting Principles (GAAP)?
What is the purpose of Generally Accepted Accounting Principles (GAAP)?
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What type of accounting focuses on determining the cost of goods or services produced?
What type of accounting focuses on determining the cost of goods or services produced?
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What is the primary objective of Auditing?
What is the primary objective of Auditing?
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Study Notes
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
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Description
Understand the definition and objectives of accounting, including financial information for decision-making, measuring business performance, and ensuring accountability.
