Accounting Principles and Definitions

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.