Introduction to Accountancy

• Accountancy is the process of recording, summarizing, analyzing, and reporting financial transactions of a business or organization.
• It provides insights into financial performance, solvency, and cash flows.

Core Functions

• Bookkeeping: The systematic recording of financial transactions.
• Financial Accounting: Preparing financial statements for external users like investors and creditors.
• Management Accounting: Providing information to managers for decision-making, planning, and controlling.
• Auditing: Independent examination of financial statements to ensure accuracy and fairness.
• Tax Accounting: Preparing tax returns and ensuring compliance with tax laws.

Key Financial Statements

• Income Statement: Reports a company's financial performance over a period of time (revenue, expenses, and profit/loss).
• Balance Sheet: Presents a company's assets, liabilities, and equity at a specific point in time.
• Statement of Cash Flows: Summarizes the movement of cash both into and out of a company over a period of time, categorized by operating, investing, and financing activities.
• Statement of Changes in Equity: Details the changes in owners' equity over a reporting period.

Fundamental Accounting Principles

• Accrual Accounting: Revenues and expenses are recognized when earned or incurred, regardless of when cash changes hands.
• Matching Principle: Expenses are recognized in the same period as the revenues they helped generate.
• Going Concern: Assumes the business will continue operating in the foreseeable future.
• Conservatism: Recognizes potential losses when they are probable, but delays recognizing gains until they are realized.
• Consistency: Using the same accounting methods from period to period to allow for comparability.
• Materiality: Only significant information that could influence decisions needs to be disclosed.
• Objectivity: Financial information should be based on verifiable evidence.

Accounting Equation

• Assets = Liabilities + Equity
• Assets: What a company owns (cash, accounts receivable, inventory, equipment).
• Liabilities: What a company owes to others (accounts payable, loans payable).
• Equity: The owners' stake in the company (common stock, retained earnings).

Debits and Credits

• Debits increase asset and expense accounts, and decrease liability, equity, and revenue accounts.
• Credits increase liability, equity, and revenue accounts, and decrease asset and expense accounts.
• The accounting equation must always remain in balance, so the total debits must equal the total credits in every transaction.

The Accounting Cycle

• Analyzing transactions and events.
• Journalizing transactions (recording in the general journal).
• Posting journal entries to the general ledger.
• Preparing an unadjusted trial balance.
• Making adjusting entries (e.g., for accruals and deferrals).
• Preparing an adjusted trial balance.
• Preparing financial statements.
• Closing temporary accounts (revenue, expense, and dividend accounts).
• Preparing a post-closing trial balance.

Financial Ratios

• Profitability Ratios: Measure a company's ability to generate earnings (e.g., gross profit margin, net profit margin, return on equity).
• Liquidity Ratios: Measure a company's ability to meet its short-term obligations (e.g., current ratio, quick ratio).
• Solvency Ratios: Measure a company's ability to meet its long-term obligations (e.g., debt-to-equity ratio, times interest earned).
• Efficiency Ratios: Measure how efficiently a company uses its assets (e.g., inventory turnover, accounts receivable turnover).

Cost Accounting

• Cost accounting involves measuring, analyzing, and reporting costs.
• Job Order Costing: Used for unique or custom products or services.
• Process Costing: Used for homogeneous products or services.
• Activity-Based Costing (ABC): Assigns costs to activities and then to products or services based on consumption of those activities.

Budgeting

• Budgeting is the process of creating a financial plan for the future.
• Operating Budget: Focuses on revenues and expenses.
• Capital Budget: Focuses on investments in long-term assets.
• Cash Budget: Focuses on cash inflows and outflows.
• Flexible Budget: Adjusted for actual level of activity

Auditing Types

• External Audit: Conducted by independent auditors.
• Internal Audit: Conducted by employees within the organization.

Tax Accounting Concepts

• Taxable Income: Income subject to taxation.
• Tax Deductions: Expenses that reduce taxable income.
• Tax Credits: Direct reductions of tax liability.
• Tax Planning: Minimizing tax liabilities through legal means.

Accounting Standards

• GAAP (Generally Accepted Accounting Principles): The common set of accounting rules, standards, and procedures issued by the Financial Accounting Standards Board (FASB).
• IFRS (International Financial Reporting Standards): A set of accounting standards issued by the IASB (International Accounting Standards Board) to have a global consistancy in financial reporting.

Ethics in Accounting

• Integrity: Being honest and straightforward.
• Objectivity: Being unbiased.
• Confidentiality: Protecting sensitive information.
• Professional Competence and Due Care: Maintaining professional knowledge and skills.
• Professional Behavior: Complying with relevant laws and regulations.

Careers in Accounting

• Public Accountant: Provides accounting services to the public (auditing, tax preparation, consulting).
• Management Accountant: Works within a company to provide financial information for decision-making.
• Government Accountant: Works for government agencies (auditing, budgeting, financial reporting).
• Forensic Accountant: Investigates financial crimes and fraud.
• Auditor: Examines financial records and provides assurance about their accuracy.

Key Accounting Software

• QuickBooks: Popular for small businesses, providing basic accounting features.
• Xero: Cloud-based accounting software for small businesses.
• SAP: Comprehensive ERP (Enterprise Resource Planning) system for large organizations.
• Oracle NetSuite: Cloud-based ERP system for mid-sized to large organizations.

Depreciation Methods

• Straight-Line Depreciation: Allocates an equal amount of depreciation expense each year.
• Declining Balance Depreciation: Applies a constant rate to the declining book value of the asset.
• Units of Production Depreciation: Based on actual usage or output of the asset.

Inventory Valuation Methods

• FIFO (First-In, First-Out): Assumes the first units purchased are the first ones sold.
• LIFO (Last-In, First-Out): Assumes the last units purchased are the first ones sold (not permitted under IFRS).
• Weighted-Average Cost: Calculates a weighted average cost for all inventory items.

Internal Controls

• Separation of Duties: Different individuals should be responsible for related activities.
• Authorization: Transactions should be properly authorized.
• Documentation: Transactions should be properly documented.
• Physical Controls: Safeguarding assets through physical measures.
• Reconciliation: Regularly comparing records to ensure accuracy.

Current Assets

• Cash and Cash Equivalents: Most liquid assets.
• Accounts Receivable: Money owed to the company by customers.
• Inventory: Goods held for sale.
• Prepaid Expenses: Expenses paid in advance.

Current Liabilities

• Accounts Payable: Money owed to suppliers.
• Salaries Payable: Wages owed to employees.
• Unearned Revenue: Payments received for goods or services not yet provided.
• Short-Term Debt: Debt due within one year.

Accountancy involves recording, summarizing, and reporting financial transactions. It provides insights into financial performance and cash flows. Core functions include bookkeeping, financial accounting, and management accounting, all vital for business operations.