Charity International University College Liberia

Faculty of Administration

Department of Business Administration Management

Course Title: Principles of Accounting I

Course Code: BAM 113

Program Level: Associate Degree

Unit 1: Introduction to Accounting

Definition and Purpose of Accounting

Accounting is the systematic process of identifying, recording, classifying,

summarizing, interpreting, and communicating financial information. The
primary purpose of accounting is to provide relevant financial information to
stakeholders for decision-making. It helps businesses track their financial
performance, comply with regulations, and ensure transparency.

Users of Accounting Information (Internal & External)

Accounting information serves various users:

Internal Users: Managers, owners, and employees who need financial data
for decision-making, budgeting, and performance evaluation.

External Users: Investors, creditors, regulatory agencies, and tax authorities

who assess the financial health of an organization.

The Role of Accounting in Business

Accounting plays a critical role in:

Recording financial transactions

Ensuring regulatory compliance

Aiding managerial decision-making

Facilitating investment and credit decisions

Differences Between Financial and Managerial Accounting

Financial Accounting: Focuses on external reporting and follows standardized

principles such as GAAP and IFRS.

Managerial Accounting: Provides internal reports for business planning,

costing, and decision-making.

References

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2021). Accounting Principles

(14th ed.). Wiley.

Horngren, C. T., Harrison, W. T., & Oliver, S. (2019). Financial & Managerial
Accounting (6th ed.). Pearson.

Unit 2: Accounting Principles and Concepts

Generally Accepted Accounting Principles (GAAP)

GAAP provides standardized accounting guidelines that ensure consistency

and transparency in financial reporting. Key principles include:

Accrual Principle: Transactions are recorded when they occur, not when cash
is exchanged.

Consistency Principle: The same accounting methods should be used

consistently over time.

Materiality Principle: Financial statements should include all information that

could influence decision-making.

The Accounting Equation: Assets = Liabilities + Equity

This equation forms the foundation of double-entry accounting and ensures

that a company’s books remain balanced.

Accrual vs. Cash Basis Accounting

Accrual Basis: Revenues and expenses are recorded when they are incurred,
regardless of cash flow.

Cash Basis: Revenues and expenses are recorded only when cash is received
or paid.

The Matching Principle, Revenue Recognition, and Consistency Concept

Matching Principle: Expenses should be recorded in the same period as the

revenues they help generate.

Revenue Recognition: Revenue should be recorded when earned, not

necessarily when received.

Consistency: Companies should use the same accounting methods for

comparability.

References

Fess, P. E., & Warren, C. S. (2020). Accounting: A Business Perspective (11th

ed.). McGraw-Hill.

IFRS Foundation. (2022). International Financial Reporting Standards (IFRS).

Unit 3: The Accounting Cycle

Identifying and Recording Transactions

Transactions include financial events such as sales, purchases, and

expenses. Proper documentation is necessary for accuracy.

Journal Entries and Ledger Accounts

Transactions are recorded in journals before being posted to ledger accounts,

which categorize financial data.

Trial Balance Preparation

A trial balance ensures that total debits equal total credits, verifying the
accuracy of recorded transactions.

Adjusting Entries and the Closing Process

Adjustments are made to align revenues and expenses with the correct
accounting period before financial statements are finalized.

References
Needles, B. E., Powers, M., & Crosson, S. V. (2018). Financial Accounting
(12th ed.). Cengage Learning.

Porter, G. A., & Norton, C. L. (2020). Financial Accounting: The Impact on

Decision Makers (11th ed.). Cengage Learning.

Unit 4: Double-Entry Bookkeeping

The Concept of Debit and Credit

Debits: Increase assets and expenses but decrease liabilities and equity.

Credits: Increase liabilities and equity but decrease assets and expenses.

Rules of Recording Transactions

Each transaction affects at least two accounts, ensuring the accounting

equation remains balanced.

The General Journal and General Ledger

General Journal: The first place where transactions are recorded.

General Ledger: A collection of accounts summarizing all financial

transactions.

Posting to Ledger Accounts

Entries from the journal are posted to respective ledger accounts to maintain
financial records.

References

Meigs, R. F., & Meigs, M. A. (2019). Accounting: The Basis for Business
Decisions (11th ed.). McGraw-Hill.

Unit 5: Preparation of Financial Statements

The Income Statement (Profit & Loss Statement)

Summarizes revenues and expenses to determine a company’s profitability

over a period.

The Balance Sheet (Statement of Financial Position)

Shows a company's financial position by listing its assets, liabilities, and
equity.

The Cash Flow Statement

Tracks cash inflows and outflows from operating, investing, and financing
activities.

Statement of Retained Earnings

Reports changes in retained earnings, reflecting net income and dividend

payments.

References

Warren, C. S., Reeve, J. M., & Duchac, J. (2019). Financial Accounting (15th
ed.). Cengage Learning.

Unit 6: Accounting for Cash and Bank Reconciliation

Handling Cash Transactions

Cash management techniques ensure accuracy and fraud prevention.

The Importance of Internal Controls

Internal controls safeguard assets and prevent fraud through policies such as
segregation of duties.

Bank Reconciliation Process

Compares a company’s cash book with bank statements to identify

discrepancies and errors.

References

Wild, J. J. (2018). Financial Accounting Fundamentals (6th ed.). McGraw-Hill

Unit 7: Accounting for Inventory and Cost of Goods Sold

Inventory Valuation Methods (FIFO, LIFO, Weighted Average)

FIFO (First-In, First-Out): Oldest inventory is sold first.

LIFO (Last-In, First-Out): Newest inventory is sold first.

Weighted Average: Costs are averaged over all inventory units.

Perpetual vs. Periodic Inventory Systems

Perpetual: Inventory records are updated continuously.

Periodic: Inventory is updated at set intervals.

Adjustments for Inventory Shrinkage

Inventory discrepancies may arise due to theft, damage, or recording errors.

References

Heintz, J. A., & Parry, R. W. (2018). College Accounting (22nd ed.). Cengage
Learning.

Unit 8: Ethics in Accounting and Financial Reporting

The Role of Ethics in Accounting

Maintaining integrity and honesty ensures trust in financial reporting.

Fraud and Misrepresentation in Financial Reporting

Common fraudulent activities include overstating revenues and understating

expenses.

The Sarbanes-Oxley Act and Its Implications

This U.S. law establishes stricter financial regulations to prevent corporate

fraud.

References

Mintz, S. M., & Morris, R. E. (2022). Ethical Obligations and Decision Making
in Accounting (5th ed.). McGraw-Hill.