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Accounting

Accounting is the systematic recording and analysis of financial transactions, aimed at providing useful information to stakeholders. It operates on the basic equation of Assets = Liabilities + Owner’s Equity and employs a double-entry system to ensure balance. Financial statements, adjusting entries, and adherence to accounting standards and ethics are crucial for accurate reporting and maintaining trust in the profession.

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2 views5 pages

Accounting

Accounting is the systematic recording and analysis of financial transactions, aimed at providing useful information to stakeholders. It operates on the basic equation of Assets = Liabilities + Owner’s Equity and employs a double-entry system to ensure balance. Financial statements, adjusting entries, and adherence to accounting standards and ethics are crucial for accurate reporting and maintaining trust in the profession.

Uploaded by

jantriciad
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Page 1 - Introduction to Accounting:

Accounting is often called the 'language of business.' It involves the systematic recording, reporting,
and analysis of financial transactions of a business. The main purpose is to provide useful financial
information to stakeholders such as investors, creditors, management, and regulators. Key objectives
include recording business transactions, determining profit or loss, and presenting a true and fair view
of the company's financial position.

Users of accounting information include internal users (management, employees) and external users
(investors, creditors, government, and the public).
Page 2 - The Accounting Equation and Double-Entry System:

The basic accounting equation is:


Assets = Liabilities + Owner’s Equity.

This shows that what the business owns (assets) is financed by what it owes (liabilities) and what
owners have invested (equity). The double-entry system means every transaction affects at least two
accounts. For example, purchasing equipment for cash decreases Cash but increases Equipment.
Debits and Credits are used: Debit means 'left side' and Credit means 'right side' of accounts. They
must always balance.
Page 3 - Financial Statements:

Financial statements summarize business activities:


1. Income Statement – shows revenues and expenses, resulting in net profit or loss.
2. Balance Sheet – lists assets, liabilities, and equity at a point in time.
3. Cash Flow Statement – shows inflows and outflows of cash from operating, investing, and financing
activities.

These statements help stakeholders assess profitability, liquidity, and financial stability.
Page 4 - Adjusting Entries and Closing Process:

Adjusting entries are made at the end of an accounting period to recognize revenues when earned and
expenses when incurred, regardless of cash flow. Examples include accrued expenses, accrued
revenues, prepaid expenses, and depreciation. After adjustments, temporary accounts like Revenues
and Expenses are closed to the Income Summary and then transferred to Retained Earnings. This
prepares accounts for the next period.
Page 5 - Accounting Standards and Ethics:

Accounting standards (GAAP or IFRS) provide guidelines to ensure financial information is


comparable, reliable, and transparent. Ethics is essential in accounting because users rely on truthful
information to make decisions. Professional accountants must follow principles of integrity, objectivity,
confidentiality, and professional behavior. Scandals like Enron highlight the consequences of unethical
accounting practices.

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