Introduction to Accounting Concepts

Study Notes

Accounting is the process of identifying, recording, and communicating economic information for decision-making.
Key elements of accounting include:
- Identifying: Analyzing transactions to categorize them as "accountable" or "non-accountable" based on their impact on assets, liabilities, equity, income, and expenses.
- Recording: Recognizing and documenting accountable events through journalizing and posting to accounts.
- Communicating: Summarizing and conveying processed information through reports, predominantly financial statements.

Quantitative Information: Numerical data expressed in figures or units.
Qualitative Information: Descriptive data captured in words.
Financial Information: Monetary data, which is inherently quantitative since it involves numerical amounts.

Bookkeeping is a part of accounting focused on recording transactions through trial balance preparation.
Accounting extends beyond bookkeeping, encompassing the entire process of identifying, recording, and communicating relevant information.

Referred to as the "language of business" for its crucial role in communicating financial data.
Primary functions:
- Providing external users (non-owners) with pertinent information for investment and credit-related decisions.
- Supplying internal users (owners and managers) with data for effective business management.

Accounting serves as an essential tool for managers to execute management roles effectively.
Managerial functions include:
- Planning: Outlining how to achieve business goals in detail.
- Organizing: Arranging resources and assigning responsibilities in line with the plan.
- Staffing: Selecting, training, and developing personnel (human resource management).
- Directing: Leading and motivating employees to fulfill their obligations towards organizational goals.
- Controlling: Monitoring outcomes against established goals and making necessary adjustments.