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Accounting Notes

Accounting is the process of recording and analyzing financial transactions to inform decision-making and present a company's financial position. Key terms include assets, liabilities, equity, revenue, and expenses, along with principles like the double-entry system and matching principle. Financial statements such as the income statement, balance sheet, and cash flow statement provide insights into a company's performance and financial health.

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27 views1 page

Accounting Notes

Accounting is the process of recording and analyzing financial transactions to inform decision-making and present a company's financial position. Key terms include assets, liabilities, equity, revenue, and expenses, along with principles like the double-entry system and matching principle. Financial statements such as the income statement, balance sheet, and cash flow statement provide insights into a company's performance and financial health.

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Ms. waffle
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Accounting Notes:

- Definition: Accounting is the process of recording, summarizing, and analyzing financial transactions of a
business or organization to provide useful information for decision-making.

- Purpose: To present a clear and accurate picture of a company’s financial position and performance, helping
stakeholders make informed decisions.

Key Accounting Terms:


- Assets: Resources owned by a business (e.g., cash, inventory, buildings).
- Liabilities: Obligations or debts owed by the business (e.g., loans, accounts payable).
- Equity: Owner’s residual interest in assets after liabilities (Assets - Liabilities).
- Revenue: Income earned from sales of goods or services.
- Expenses: Costs incurred to earn revenue (e.g., rent, wages).

Basic Accounting Principles and Concepts:


- Double-entry system: Every transaction affects at least two accounts, maintaining the accounting equation.
- Conservatism: Expenses and liabilities are recognized promptly; revenues only when assured.
- Matching Principle: Expenses must be matched with the revenues they help generate within the same period.
- Going Concern: Assumes the business will continue operating indefinitely.
- Cost Principle: Assets are recorded at their original cost, not market value.

Financial Statements:
- Income Statement: Shows profit or loss over a period by summarizing revenues and expenses.
- Balance Sheet: A snapshot of assets, liabilities, and equity at a specific date.
- Cash Flow Statement: Details cash inflows and outflows from operating, investing, and financing activities.
- Statement of Changes in Equity: Shows changes in equity accounts over the reporting period.

Notes to Financial Statements:


- Provide explanations and detail accounting policies, contingencies, employee benefits, and specifics behind
the figures listed in financial statements. They ensure transparency and compliance with accounting standards.

Accounting Cycle Steps:


1. Identifying transactions
2. Recording in journals
3. Posting to ledgers
4. Preparing trial balance
5. Making adjusting entries
6. Preparing financial statements
7. Closing entries

Common Methods:
- Depreciation: Straight-line and reducing balance methods allocate asset cost over useful life.
- Inventory valuation methods: FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and weighted average.

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