Definition of Accounting ?
Accountancy is the process of communicating financial information about a business entity to
users such as shareholders and managers. The communication is generally in the form orm of
financial statements that show in money terms the economic resources under the control of
management; the art lies in selecting the information that is relevant to the user and is
reliable. The principles of accountancy are applied to business entities in three divisions of
practical art, named accounting, bookkeeping and auditing.
Define the Three basic elements of accounting ?
Cost Accounting - A form of managerial accounting that aims to capture a
company's total cost of production by assessing the variable costs of each step of
production as well as fixed costs, such as a lease expense.
Managerial accounting - The practice of identifying, measuring, analyzing,
interpreting, and communicating financial information to managers for the pursuit
of an organization's goals.
Financial Accounting - A specific branch of accounting involving a process of
recording summarizing, and reporting the myriad of transactions resulting from
business operations over a period of time.
Different accounting terms or accounting title used in recording business
transactions
Balance sheet - balance sheet refers to a financial statement that reports a company's assets,
liabilities, and shareholder equity at a specific point in time. Balance sheets provide the basis
for computing rates of return for investors and evaluating a company's capital structure.
In short, the balance sheet is a financial statement that provides a snapshot of what a
company owns and owes, as well as the amount invested by shareholders. Balance sheets can
be used with other important financial statements to conduct fundamental analysis or
calculate financial ratios.
Cash Flow - is the net cash and cash equivalents transferred in and out of a
company. Cash received represents inflows, while money spent represents
outflows. A company creates value for shareholders through its ability to generate
positive cash flows and maximize long-term free cash flow (FCF). FCF is the cash
from normal business operations after subtracting any money spent on capital
expenditures (CapEx).
Accountant - reviews and analyses financial records, keeping track of a company's
or individual's income, expenditures, and tax liabilities. An accountant may also be
involved in project planning, cost analysis, auditing, and financial decision-making.
Some specialize in tax preparation and tax planning.
Debit card- also known as a check card or bank card, is a payment card that can be
used in place of cash to make purchases. The card usually consists of the bank's
name, a card number, the cardholder's name, and an expiration date, on either
the front or the back
Accounts payable (AP), or "payables,"- refer to a company's short-term
obligations owed to its creditors or suppliers, which have not yet been paid.
Payables appear on a company's balance sheet as a current liability.
Accruals - are revenues earned or expenses incurred that impact a company's net
income on the income statement, although cash related to the transaction has not
yet changed hands. Accruals also affect the balance sheet, as they involve non-
cash assets and liabilities.
Bookeeper - manage a company’s financial accounts, ensuring they are accurate
and easy to review. Their work plays an important role in the operation of a
successful business, which can have very many transactions in a single day, let
alone a week, month, fiscal quarter, or year.
Accounts receivable (AR) - is the balance of money due to a firm for goods or
services delivered or used but not yet paid for by customers. Accounts receivable
is listed on the balance sheet as a current asset. Any amount of money owed by
customers for purchases made on credit is AR.
Define Financial Statement
Financial statements are written records that convey the financial activities of a
company. Financial statements are often audited by government agencies and
accountants to ensure accuracy and for tax, financing, or investing purposes. For-
profit primary financial statements include the balance sheet, income statement,
statement of cash flow, and statement of changes in equity. Nonprofit entities use
a similar but different set of financial statements.
Basic financial statement
The balance sheet Statement of cashflow
The income statement The statement of retaining earnings
Balance Sheet – is a financial statement that contains details of a company’s
assets or liabilities at a specific point in time and it provideds information on a
company’s resources (assets)and its sources of capital (equity and liabities/debt.
Income Statement – that report a company’s financial performance over a
specific accounting period . the income statement focuses on the
revenue,expenses,gains,and losses of a company during a particular period
Statement of cashflow - a financial statement that summarizes the amount of
cash flowing into and out of a company. This includes all cash inflows a company
receives from its ongoing operations and external investment sources.
Statement of retaining earnings - shows how much earnings a company has
accumulated and kept in the company since inception. The numbers provide
insight into a company's financial position and the owner's attitude toward
reinvesting in and growing their business.
Ex.
If your tax rate is 10%, your taxes are $400. Your net income will be profit minus
taxes or $3,600. Retained earnings are the net income that a company retains for
itself. If your company paid out $2,000 in dividends, then your retained earnings
are $1,600.
