Introduction to Accountancy

Accountancy is the recording, classifying, summarizing, and reporting of financial transactions of a business.
It involves the systematic process of keeping records of financial transactions, which helps in decision-making.
Accountancy employs the double-entry bookkeeping system, which ensures that every transaction affects at least two accounts.
Importance: enables businesses to track financial performance, comply with regulatory requirements, and make informed decisions.

Accounting concepts: fundamental assumptions underpinning the preparation of financial statements. These include going concern, monetary unit, cost, and duality.
Accounting Conventions: generally accepted practices observed in accounting procedures, comprising prudence, consistency, and materiality.
Going Concern: assumes that the business will continue to operate in the foreseeable future.
Monetary Unit: records transactions in a stable currency, assuming constant purchasing power.
Cost: initially records transactions at their historical cost.
Duality: Every transaction affects at least two accounts; a debit and a credit, with debits equal to credits.
Prudence: records expenses and liabilities as soon as possible, while profits are recognized only when realized.
Consistency: maintains consistent accounting methods from one period to the next for consistent reporting.
Materiality: significant and relevant details must be included in financial records.

The fundamental accounting equation is Assets = Liabilities + Equity.
Assets: resources owned by the business that will provide future economic benefits.
Liabilities: obligations of the business to external parties.
Equity: owners' stake in the business's assets after deducting liabilities.
The equation maintains balance in the accounting records (debit = credit).

Assets, Liabilities, and Equity are the main groups of accounts.
Asset accounts: bank balance, cash in hand, furniture, machinery, etc.
- Increased by debit, decreased by credit.
Liability accounts: creditors, outstanding expenses, salaries payable.
- Increased by credit, decreased by debit.
Equity accounts: capital, drawings, revenue, expense.
- Increased by credit, decreased by debit.

Journal entries are the initial recording of transactions in the general journal.
Transactions are recorded in date order.
Entries use debit and credit to reflect the effects on accounts.
Each entry should have a clear description of the transaction.
Example: A purchase of goods on credit will debit purchases and credit creditors.

Ledgers are the organized summaries of all transactions related to specific accounts.
Each account has its own ledger page.
Transactions are posted from the journal to the ledger. This posting system keeps track of the balance of each account.
- Balance Sheet and Trial Balance, are derived from Ledger reports.

Income statement: reports a business's financial performance over a period. It shows revenue and expenses to calculate net profit or loss.
Balance sheet: reports a business's financial position at a specific point in time. It summarizes assets, liabilities, and equity.
Cash Flow Statement: reports the cash inflows and outflows of a business over a period. It shows activities from operating, investing and financing.
- Helps understand the movement of cash in and out of the business.

Depreciation is the systematic allocation of the cost of a fixed asset over its useful life.
It reflects the decreasing value of an asset over time.
Several methods exist, including straight-line, diminishing balance and written down value methods, depending on the asset and business policies.

Inventory valuation is the process of determining the cost assigned to the goods that are sold or held in stock.
Various methods exist for costing inventory, such as FIFO (First In, First Out), LIFO (Last In, First Out), and Weighted Average.

Reconciliation is a process to ensure that the bank statement balance matches the company's cash book balance.
Differences arise from timing differences in recording transactions.

Partnership accounts involve accounting for the financial transactions of a partnership business.
Features include capital accounts, drawings, and sharing of profits and losses.
Specific accounting techniques for recording the partners' contributions and profit distribution.

Company accounts involve accounting for a business that is a company. The unique features like share capital and dividends are part of the accounting equation.
Methods for managing and accounting for shareholder equity.

Using accounting software to automate tasks, such as recording transactions and preparing financial reports.
Software like Tally, QuickBooks, etc. enhance efficiency in managing accounting processes.