Introduction to Accountancy

• Accountancy involves recording, classifying, summarizing, and interpreting financial transactions.
• The data collated is used to provide information to stakeholders.
• Key stakeholders include managers, investors, creditors, and regulatory agencies.

Core Functions

• Bookkeeping systematically records financial transactions.
• Financial accounting focuses on preparing financial statements for external users.
• Management accounting provides data for internal decision-making.
• Auditing provides independent reviews of financial statements.
• Tax accounting manages tax compliance and planning.
• Forensic accounting investigates financial fraud and irregularities.

Key Concepts

• The accounting equation is: Assets = Liabilities + Equity.
• Assets are resources a company owns.
• Liabilities are obligations to others.
• Equity represents the owners' stake in the company.
• Revenue is income from the sale of goods or services.
• Expenses are costs incurred to generate revenue.
• Profit, or net income, is calculated as Revenue - Expenses.

Financial Statements

• The income statement reports financial performance over a period.
• It includes revenues, expenses, and profit or loss.
• The balance sheet presents assets, liabilities, and equity at a specific time.
• It follows the accounting equation.
• The statement of cash flows reports cash movement in and out of a company over a period.
• Cash flows are classified into operating, investing, and financing activities.
• The statement of changes in equity shows changes in equity accounts over a period.
• It includes items such as profit, dividends, and share issuances.

Accounting Principles

• The going concern principle assumes a company will continue operating in the foreseeable future.
• The accrual principle recognizes revenue when earned and expenses when incurred, regardless of cash flow.
• The matching principle aligns expenses with the revenues they helped generate.
• The cost principle records assets at their original cost.
• The consistency principle mandates using the same accounting methods from period to period.
• The materiality principle allows ignoring insignificant items that wouldn't affect decisions.
• The objectivity principle requires financial information to be based on verifiable evidence.
• The conservatism principle advises caution in recognizing revenue and expenses.

Accounting Standards

• Generally Accepted Accounting Principles (GAAP) is a common set of accounting rules, standards, and procedures.
• International Financial Reporting Standards (IFRS) are a set of accounting standards issued by the IASB.
• Different countries may use different accounting standards.

Accounting Cycle

• The accounting cycle is a series of steps used to record and process accounting transactions.
• First identify transactions.
• Followed by recording transactions in a journal.
• Post journal entries to a ledger.
• Prepare a trial balance.
• Make adjusting entries.
• Prepare financial statements.
• Close the books.

Assets

• Current assets can be converted to cash or used up within one year.
• Examples include cash, accounts receivable, and inventory.
• Non-current assets have a life of more than one year.
• Examples include property, plant, and equipment (PP&E).
• Tangible assets are physical assets, such as land, buildings, and equipment.
• Intangible assets are non-physical assets, such as patents, trademarks, and goodwill.

Liabilities

• Current liabilities are obligations due within one year.
• Examples include accounts payable, salaries payable, and short-term loans.
• Non-current liabilities are obligations due in more than one year.
• Examples include long-term loans, bonds payable, and deferred tax liabilities.

Equity

• Equity represents the owners' stake in the company.
• Common stock represents the initial investment by shareholders.
• Retained earnings represent the accumulated profits that have not been distributed to shareholders.

Cost Accounting

• Cost accounting involves the measurement, analysis, and reporting of costs.
• Job order costing tracks costs for individual projects or jobs.
• Process costing tracks costs for homogeneous products or services.
• Activity-based costing (ABC) assigns costs to activities and then to products or services.

Budgeting

• Budgeting involves creating a plan for future revenues and expenses.
• A master budget is a comprehensive budget that includes all of a company's budgets.
• Operating budgets include sales, production, and expense budgets.
• Financial budgets include cash, capital expenditure, and balance sheet budgets.
• Variance analysis compares actual results to budgeted amounts.

Financial Analysis

• Ratio analysis involves calculating and interpreting financial ratios.
• Liquidity ratios measure a company's ability to meet its short-term obligations.
• Examples include the current ratio and quick ratio.
• Solvency ratios measure a company's ability to meet its long-term obligations.
• Examples include the debt-to-equity ratio and times interest earned ratio.
• Profitability ratios measure a company's ability to generate profits.
• Examples include the profit margin, return on assets, and return on equity.
• Activity ratios measure how efficiently a company is using its assets.
• Examples include inventory turnover and accounts receivable turnover.