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Questions and Answers
What is the primary purpose of accounting?
What is the primary purpose of accounting?
Which accounting principle recognizes revenue and expenses when earned or incurred?
Which accounting principle recognizes revenue and expenses when earned or incurred?
What is the formula for the accounting equation?
What is the formula for the accounting equation?
What type of accounting focuses on internal decision-making and performance evaluation?
What type of accounting focuses on internal decision-making and performance evaluation?
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What financial statement presents a company's financial position at a specific point in time?
What financial statement presents a company's financial position at a specific point in time?
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What is the purpose of the matching principle?
What is the purpose of the matching principle?
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What is the term for debts or obligations owed by a business?
What is the term for debts or obligations owed by a business?
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What is the set of rules and guidelines for financial reporting in the United States?
What is the set of rules and guidelines for financial reporting in the United States?
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Study Notes
Accounting Definition
- Accounting is the process of recording, classifying, and reporting financial information of a business or organization.
- It provides stakeholders with financial information to make informed decisions.
Accounting Principles
- Accrual Accounting: recognizes revenue and expenses when earned or incurred, not when cash is received or paid.
- Cash Accounting: recognizes revenue and expenses when cash is received or paid.
- Matching Principle: matches expenses with revenues in the same period.
- Materiality: discloses information that could influence investment decisions.
- Consistency: applies accounting methods and procedures consistently.
Accounting Equation
- Assets = Liabilities + Equity
- Assets: resources owned or controlled by the business (e.g., cash, inventory, property).
- Liabilities: debts or obligations owed by the business (e.g., loans, accounts payable).
- Equity: ownership interest in the business (e.g., common stock, retained earnings).
Financial Statements
- Balance Sheet: presents the company's financial position at a specific point in time.
- Income Statement: reports revenues and expenses over a specific period.
- Cash Flow Statement: shows the inflows and outflows of cash over a specific period.
Accounting Branches
- Financial Accounting: focuses on financial reporting to external stakeholders.
- Managerial Accounting: focuses on internal decision-making and performance evaluation.
- Cost Accounting: focuses on calculating and managing the cost of products or services.
- Auditing: examines and verifies the accuracy of financial statements.
Accounting Standards
- Generally Accepted Accounting Principles (GAAP): a set of rules and guidelines for financial reporting in the United States.
- International Financial Reporting Standards (IFRS): a set of rules and guidelines for financial reporting internationally.
Accounting Definition
- Accounting is the process of recording, classifying, and reporting financial information of a business or organization to provide stakeholders with financial information for informed decisions.
Accounting Principles
- Accrual Accounting recognizes revenue and expenses when earned or incurred, not when cash is received or paid.
- Cash Accounting recognizes revenue and expenses when cash is received or paid.
- The Matching Principle matches expenses with revenues in the same period.
- The Materiality Principle discloses information that could influence investment decisions.
- The Consistency Principle applies accounting methods and procedures consistently.
Accounting Equation
- Assets = Liabilities + Equity
- Assets are resources owned or controlled by the business, such as cash, inventory, and property.
- Liabilities are debts or obligations owed by the business, such as loans and accounts payable.
- Equity represents the ownership interest in the business, including common stock and retained earnings.
Financial Statements
- The Balance Sheet presents the company's financial position at a specific point in time.
- The Income Statement reports revenues and expenses over a specific period.
- The Cash Flow Statement shows the inflows and outflows of cash over a specific period.
Accounting Branches
- Financial Accounting focuses on financial reporting to external stakeholders.
- Managerial Accounting focuses on internal decision-making and performance evaluation.
- Cost Accounting focuses on calculating and managing the cost of products or services.
- Auditing examines and verifies the accuracy of financial statements.
Accounting Standards
- Generally Accepted Accounting Principles (GAAP) is a set of rules and guidelines for financial reporting in the United States.
- International Financial Reporting Standards (IFRS) is a set of rules and guidelines for financial reporting internationally.
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Description
Learn about the fundamental principles and definitions of accounting, including accrual and cash accounting, matching principle, and more.
