What is accounting? Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character and interpreting with the result thereof. - defined by AICPA Accountancy also means branch of mathematical sciences that is useful in discovering the causes of success and failure in business.
Basic ways to record your financial transaction *Balance Sheet : financial statement that reports the amount of company’s assets, liabilities and owners equity at a specific point in time
Basic accounting concepts 1. The Basic Accounting Equation 2. Debit = Credit Very important double entry bookkeeping rule!
In a transaction : all debits must equal all credits
Basic account types
How accounting helps in business sectors Record keeping recording business transactions measuring results of financial changes projecting financial effects of future transactions preparing internal reports in a user-friendly format Planning and control collecting cash controlling stocks controlling expenses co-ordination and monitoring of strategy/performance monitoring gross margins Decision making using cost information for pricing, capital investment and marketing evaluating market and product profitability evaluating the financial effect of strategies and plans
Importance of accounting system Accurate reporting of business transactions. Easy access to financial statements. Up to date reports on accounts payable, accounts receivables. Excellent management tool. Minimize problems with IRS & other tax authorities. Compare your accounts with original budgets or forecasts. Manage your resources better. Identify trends in your business. Highlight variations in your income or spending which may require attention.