Introduction to Accounting Concepts

A system of accounting that uses two entries for each transaction, one for a debit and one for a credit, ensuring that the accounting equation (Assets = Liabilities + Equity) always balances.

Luca Pacioli, an Italian mathematician and Franciscan friar, is credited with popularizing double-entry bookkeeping in the 14th century. His work, Summa Arithmetica, codified the method.

The first national U.S. accounting society, established in 1887, which later evolved into the American Institute of Certified Public Accountants (AICPA).

The process of merging one company with another, resulting in the dissolution of the merged company.

When a company acquires another company, expanding its operations and assets.

Developing accounting standards and practices to address complex situations arising from mergers, acquisitions, and multinational corporations.

The emergence of modern accounting practices and standards, heavily influenced by state requirements for financial statement audits in the 20th century.

The period from 14th to 16th centuries in Italy is considered the birthplace of modern accounting. The Italian merchants were the first to widely adopt Arabic numerals and the double-entry system.

The period of time from the 1760s to the 1830s, marked by significant technological advancements and the rise of mass production. This era emphasized the importance of fixed assets like factories and machinery in the growth of businesses.

Accounting that focuses on providing financial information for decision-making by internal users like managers and employees inside a business.

Individuals inside a company who are directly involved in planning, organizing, and operating the business. They use accounting information to make decisions for the business.

The first book published in 1494 that included a detailed chapter on double-entry bookkeeping. This work laid the foundation for modern accounting practices.

A period of significant social and political upheaval in France that had a profound impact on accounting. It led to increased governmental control of finances and influenced the development of accounting practices.

This branch of accounting focuses on educating future accountants by developing accounting curriculum and teaching students. They contribute to the profession by researching and promoting careers in accounting.

The process of recording, analyzing, classifying, and summarizing financial transactions of the government. This ensures transparency and accountability in government finances.

The process of determining the cost of producing goods or services, including materials, labor, and overhead. This information is crucial for decision-making and pricing.

Financial data that is considered sensitive and not typically shared with those outside the business. Examples include pricing strategies, expansion plans, and customer lists.

Accounting standards and regulations are established by government agencies like the Securities and Exchange Commission (SEC) to ensure accuracy and transparency in financial reporting. These standards are essential for investor confidence and fairness in financial markets.

The analysis of actual costs incurred versus planned or standard costs. This helps managers identify areas for improvement and make adjustments based on the performance of the business.

The modern accounting profession officially began in Scotland in 1854 when Queen Victoria granted a Royal Charter to the profession.

The early 20th century saw a rapid growth in American companies, leading to a surge in the demand for accountants and a focus on business practices.

Using accounting information to create detailed plans for the future, including financial projections, budgets, and strategies for achieving goals.

The process of evaluating the financial implications of different business decisions, such as launching new products, expanding operations, or making investments. This helps managers choose the best course of action.

The increasing interconnectedness of global economies has led to the need for standardized accounting practices across international borders. This ensures transparency and comparability of financial information across different countries.

A business that provides services to customers, such as hair salons, repair shops, and banks.

A business that buys and sells goods for profit, like bookstores, sari-sari stores, and hardware stores.

A business that transforms raw materials into finished products, like shoe factories and car manufacturers.

This type of business focuses on providing a service, such as haircuts, repairs, or financial advice.

A merchandising business buys goods in bulk and sells them individually for profit.

A manufacturing business uses raw materials to create new products, like cars or shoes

Service businesses have the advantage of not needing to worry about inventory costs.

A drawback of service businesses is that they are very reliant on the skills and reputation of the individual providing the service.

A legal structure that allows a group of people to own and operate a business together, sharing both profits and losses based on their contribution to the business.

The liability of the owners of a cooperative is limited to the amount of their investment in the business. They are not personally responsible for the debts or liabilities of the cooperative.

A crucial feature of cooperatives where members have equal voting rights regardless of their investment size or contribution.

Members of a cooperative decide how their profits are distributed among themselves. Profits are typically distributed based on each member's capital contribution.

Cooperatives typically allocate a portion of their annual profits to reserve funds to ensure financial stability and support future activities.

A legal requirement in some jurisdictions that allows cooperatives to extend their lifespan for a specific period, ensuring continuity.

Managers in cooperatives are typically chosen by the members. Members can elect their representatives through democratic processes.

Cooperatives are usually exempt from certain taxes, which can make them an attractive option for small businesses and community initiatives.

A business structure where ownership is divided into shares of stock. These shares can be traded publicly, making it easy to raise capital. The corporation is a separate legal entity from its owners and is not directly liable for the owners' personal debts. This allows for limited liability and a longer lifespan, as the company can continue operating even if a shareholder changes.

A business structure where two or more individuals share ownership and profits/losses. They have shared responsibility for managing the business and are personally liable for the debts of the partnership.

A business structure where a single individual owns and operates the entire business. The owner is personally liable for all debts. It's simple to set up but has limited growth potential.

A business structure where the owners are not personally liable for the debts of the business. The corporation is a separate legal entity and is taxed at a flat rate.

A business structure where the owners are personally liable for the debts of the business. It's simple to set up and operate, and profits are taxed directly to the owners.

A business structure where the owners are personally liable for the debts of the business. It's simple to set up but has limited growth potential.

A business structure where ownership is divided into shares of stock. These shares can be traded publicly, making it easy to raise capital. The corporation is a separate legal entity from its owners and is not directly liable for the owners' personal debts. This allows for limited liability and a longer lifespan, as the company can continue operating even if a shareholder changes.