Accounting Principles Notes PDF

Accounting Principles Revision Notes 1. Accounting can be defined as an information system that provides reports to users about the economic activities and condition of a business. 2. Accounting consists of three basic activities...

Accounting Principles Revision Notes 1. Accounting can be defined as an information system that provides reports to users about the economic activities and condition of a business. 2. Accounting consists of three basic activities—it identifies, records, and communicates the economic events of an organization to interested users. 3. Bookkeeping usually involves only the recording of economic events. 4. bookkeeping just one part of the accounting process. 5. The differences in the decisions divide the users of financial information into two broad groups. 6. Management at all levels uses accounting information. 7. Managers need detailed information on a timely basis, to perform these functions. 8. Financial reporting provides information to external users. 9. Financial reporting provides information to users who are not normally involved in actually running the organization. 10.External users include actual and potential shareholders, lenders and other investors. 1 Accounting Principles Revision 11.External users include customers, suppliers, the government, and the general public. 12.Investors use accounting information to make their decisions to buy, hold, or sell their financial interests. 13.Owners use accounting information to make their decisions to buy, hold, or sell their financial interests. 14.Creditors use accounting information to evaluate the risks of granting credit or lending money. 15.suppliers use accounting information to evaluate the risks of granting credit or lending money. 16.bankers use accounting information to evaluate the risks of granting credit or lending money. 17.Taxing authorities want to know if the company complies with the tax laws. 18.Regulatory agencies want to know if the company is operating within prescribed rules. 19.The different types of decisions require different types of information. 20.The first step in the recording process is to Analyze each transaction for its effect on the accounts. 2 Accounting Principles Revision 21.Transactions that can be measured in dollars and cents are recorded in the financial information system. 22.Keeping a systematic, chronological diary of events that are measured in dollars and cents is called recording. 23.Owner's equity is decreased by expenses and owner's drawings. 24.Owner's equity is increased by revenues. 25.Owner's Equity + Liabilities = Assets. 26.Hired employees is not a business transaction. 27.Accountants refer to an economic event as a transaction. 28.GAAP stands for Generally Accepted Accounting Principles. 29.Balance sheet is prepared as of a specific date. 30.Liabilities of a company are owed to creditors. 3