Introduction to Accountancy

• Accountancy is the recording, classifying, summarizing, and interpreting of financial transactions.
• Accountancy communicates financial information to users, enabling informed judgments and decisions.
• Accountancy is often called the "language of business" because it conveys information to stakeholders.
• Stakeholders include owners, managers, investors, creditors, and government agencies.

Core Functions

• Bookkeeping involves the systematic and chronological recording of financial transactions.
• Financial accounting prepares financial statements for external users, following GAAP or IFRS.
• Management accounting provides information to managers for decision-making, planning, and control.
• Auditing is the independent examination of financial statements to ensure fairness and reliability.
• Tax accounting involves preparing tax returns and planning for tax liabilities.

Key Concepts

• Assets are resources controlled by the entity from past events, expected to provide future economic benefits.
• Liabilities are present obligations from past events, expected to result in an outflow of economic resources.
• Equity represents the residual interest in the assets after deducting all liabilities.
• Revenue is increases in economic benefits that increase equity, excluding contributions from equity participants.
• Expenses are decreases in economic benefits decreasing equity, excluding distributions to equity participants.

Accounting Equation

• Assets = Liabilities + Equity, which is the foundation of the double-entry bookkeeping system.

Financial Statements

• The Income Statement reports financial performance over a period (Revenue - Expenses = Net Income).
• The Statement of Financial Position (Balance Sheet) reports assets, liabilities, and equity at a specific time.
• The Statement of Cash Flows reports cash movement categorized into operating, investing, and financing activities.
• The Statement of Changes in Equity details changes in owner's equity over a reporting period.

Generally Accepted Accounting Principles (GAAP)

• GAAP is a common set of accounting principles, standards, and procedures issued by the FASB.
• GAAP aims to ensure financial statements are relevant, reliable, comparable, and understandable.

International Financial Reporting Standards (IFRS)

• IFRS is a set of accounting standards issued by the IASB.
• IFRS aims to provide a global framework for public companies' financial statements.
• Many countries globally use IFRS.

Accounting Methods

• The cash basis recognizes revenue when cash is received and expenses when cash is paid.
• The accrual basis recognizes revenue when earned and expenses when incurred, regardless of cash flow.

Depreciation Methods

• Straight-Line depreciation allocates cost evenly over an asset's life.
• Declining Balance depreciation applies a constant rate to the asset's book value.
• Units of Production depreciation allocates costs based on actual use or output.

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.
• Weighted-Average calculates a weighted-average cost for all units available for sale.

Internal Controls

• Internal controls are processes providing reasonable assurance regarding:
• Reliability of financial reporting
• Effectiveness and efficiency of operations
• Compliance with applicable laws and regulations

Accounting Cycle

• Analyzing transactions
• Journalizing transactions
• Posting to the ledger
• Preparing a trial balance
• Making adjusting entries
• Preparing financial statements
• Closing the books

Adjusting Entries

• Accruals include revenues earned but not yet received, and expenses incurred but not yet paid.
• Deferrals include cash received or paid before revenue is earned or expense is incurred.

Ratios

• Liquidity ratios measure a company's ability to meet its short-term obligations; examples include the current and quick ratios.
• Solvency ratios measure a company's ability to meet its long-term obligations; an example is the debt-to-equity ratio.
• Profitability ratios measure a company's ability to generate earnings; examples include profit margin and return on equity.

Cost Accounting

• Cost accounting is a type of management accounting focusing on determining the cost of products/services.
• Job costing assigns costs to individual projects or jobs.
• Process costing averages costs over a large number of identical units.

Budgeting

• Budgeting is the process of creating a financial plan for the future.
• Budgets can be static (fixed) or flexible (adjusted for activity level changes).

Standard Costing

• Standard costing establishes predetermined costs for materials, labor, and overhead.
• Variances are calculated by comparing actual costs to standard costs.

Ethical Considerations

• Accountants have a responsibility to act with integrity, objectivity, and professional competence.
• Maintaining confidentiality is an important ethical consideration.