Accounting Fundamentals

Accounting is the process of recording, classifying, and reporting financial transactions and events of a business or organization.
It provides stakeholders with financial information to make informed decisions.

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

Accounting Entity: separates business transactions from personal transactions.
Going Concern: assumes the business will continue to operate for the foreseeable future.
Monetary Unit: records transactions in a common currency.
Historical Cost: records transactions at their original cost.
Matching Principle: matches expenses with revenues in the same period.
Materiality: only reports material transactions that affect financial decisions.
Consistency: applies accounting methods consistently across periods.
Comparability: allows for comparison between companies.

Balance Sheet: presents the company's financial position at a specific point in time.
Income Statement: presents the company's revenues and expenses over a specific period.
Cash Flow Statement: presents the company's inflows and outflows of cash over a specific period.

Identify and Record Transactions: journals and ledgers are used to record transactions.
Classify and Post Transactions: transactions are classified and posted to the ledger.
Prepare Trial Balance: a list of all general ledger accounts and their balances.
Prepare Financial Statements: financial statements are prepared from the trial balance.
Close Accounts: temporary accounts are closed to prepare for the next accounting period.

Liquidity Ratios: measure a company's ability to pay short-term debts (e.g., Current Ratio).
Profitability Ratios: measure a company's ability to generate earnings (e.g., Gross Margin Ratio).
Efficiency Ratios: measure a company's ability to use its assets efficiently (e.g., Asset Turnover Ratio).
Solvency Ratios: measure a company's ability to pay long-term debts (e.g., Debt-to-Equity Ratio).

Accounting is the process of recording, classifying, and reporting financial transactions and events of a business or organization.
It provides stakeholders with financial information to make informed decisions.

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

Accounting Entity separates business transactions from personal transactions.
Going Concern assumes the business will continue to operate for the foreseeable future.
Monetary Unit records transactions in a common currency.
Historical Cost records transactions at their original cost.
Matching Principle matches expenses with revenues in the same period.
Materiality only reports material transactions that affect financial decisions.
Consistency applies accounting methods consistently across periods.
Comparability allows for comparison between companies.

Balance Sheet presents the company's financial position at a specific point in time.
Income Statement presents the company's revenues and expenses over a specific period.
Cash Flow Statement presents the company's inflows and outflows of cash over a specific period.

Identify and Record Transactions use journals and ledgers to record transactions.
Classify and Post Transactions classify transactions and post to the ledger.
Prepare Trial Balance create a list of all general ledger accounts and their balances.
Prepare Financial Statements prepare financial statements from the trial balance.
Close Accounts close temporary accounts to prepare for the next accounting period.

Liquidity Ratios measure a company's ability to pay short-term debts (e.g., Current Ratio).
Profitability Ratios measure a company's ability to generate earnings (e.g., Gross Margin Ratio).
Efficiency Ratios measure a company's ability to use its assets efficiently (e.g., Asset Turnover Ratio).
Solvency Ratios measure a company's ability to pay long-term debts (e.g., Debt-to-Equity Ratio).