Overview of Accounting Concepts

Definition: Accounting is the systematic process of recording, measuring, and communicating financial information about economic entities.
Purpose: To provide stakeholders with information for decision-making.

Financial Accounting:
- Focus on reporting financial information to external users (investors, creditors).
- Produces financial statements (balance sheet, income statement, cash flow statement).
Managerial Accounting:
- Focus on providing information to internal users (management).
- Involves budgeting, forecasting, and performance evaluation.
Cost Accounting:
- Analyzes the costs of production and operations.
- Aids in budgeting and cost control.
Tax Accounting:
- Deals with tax-related matters and compliance.
- Follows regulations set forth by tax authorities.

Balance Sheet: Snapshot of an entity’s assets, liabilities, and equity at a specific point in time.
Income Statement: Summarizes revenues, expenses, and profits over a period.
Cash Flow Statement: Details cash inflows and outflows from operating, investing, and financing activities.

Double-Entry Accounting: Every transaction affects at least two accounts (debits and credits).
Accrual Basis Accounting: Revenue and expenses are recorded when earned or incurred, not when cash is exchanged.
Consistency Principle: Use the same accounting methods from period to period for comparability.

Assets: Resources owned by a company (e.g., cash, inventory).
Liabilities: Obligations owed to external parties (e.g., loans, accounts payable).
Equity: The residual interest in the assets of an entity after deducting liabilities.

Identify Transactions: Determine which events require accounting entries.
Record Transactions: Use journals to make initial entries.
Post to Ledger: Transfer journal entries to respective accounts in the ledger.
Prepare Trial Balance: Ensure total debits equal total credits.
Adjust Entries: Make necessary adjustments for accruals and deferrals.
Prepare Financial Statements: Create the balance sheet, income statement, and cash flow statement.
Close the Books: Transfer temporary account balances to permanent accounts at year-end.

GAAP (Generally Accepted Accounting Principles): Framework of accounting standards for U.S. companies.
IFRS (International Financial Reporting Standards): International accounting standards for global consistency.

Importance of integrity, transparency, and adherence to professional standards in accounting practices.

Accounting systematically records, measures, and communicates financial information for economic entities.
Its main purpose is to provide crucial information for stakeholders to facilitate informed decision-making.

Financial Accounting: Reports financial data to external users like investors and creditors; produces key financial statements including the balance sheet, income statement, and cash flow statement.
Managerial Accounting: Supplies information for internal users, primarily management; encompasses activities such as budgeting, forecasting, and performance evaluation.
Cost Accounting: Focuses on analyzing production and operational costs; essential for budgeting and controlling expenses.
Tax Accounting: Addresses tax-related matters, ensuring compliance with tax regulations established by authorities.

Balance Sheet: Provides a detailed snapshot of a company’s assets, liabilities, and equity at a specific date.
Income Statement: Compiles revenues, expenses, and net profit or loss over a set period.
Cash Flow Statement: Tracks cash inflow and outflow across operating, investing, and financing activities.

Double-Entry Accounting: Every transaction necessitates an entry affecting at least two accounts (debits and credits).
Accrual Basis Accounting: Records revenue and expenses when they are earned or incurred, rather than upon cash exchange.
Consistency Principle: Mandates the use of uniform accounting methods over time for accurate period comparisons.

Assets: Resources owned by a company, including cash and inventory.
Liabilities: Debts or obligations owed to external parties, such as loans and accounts payable.
Equity: Represents the residual interest in the assets after deducting liabilities.

Identifying transactions that require accounting entries is the first step.
Transactions are recorded using journals before being posted to the ledger.
A trial balance is prepared to ensure that total debits equal total credits.
Necessary adjustments for accruals and deferrals are made prior to financial statement preparation.
Financial statements, including the balance sheet and income statement, are then drafted.
Finally, the books are closed by transferring temporary account balances to permanent accounts at the end of the year.

GAAP: Generally Accepted Accounting Principles, the framework for accounting standards in the U.S.
IFRS: International Financial Reporting Standards, which provide consistency in global accounting practices.

Internal users include management and employees who rely on financial data for internal decision-making.
External users encompass investors, creditors, regulatory bodies, and financial analysts who assess a company's financial health.

Ethical practices in accounting emphasize integrity, transparency, and adherence to professional standards.

The integration of accounting software, such as QuickBooks and SAP, enhances efficiency.
Automation and artificial intelligence are revolutionizing accounting processes, improving accuracy and productivity.