Importance of accounting:-
Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization’s business activities.
Recordkeeping, or bookkeeping, is the recording of transactions and events, either manually or electronically. This is just one part of accounting.
Very important notes:-
1- Accounting is information system. 2- Accounting is science and art.
3- Accounting helps in making decisions.
Users of accounting information:
External users of accounting information:-
Are not working in the organization
Internal users of accounting information:-
Are working in the organization
Generally Accepted Accounting Principles
There are 3 setters of accounting principles:-
1- Financial Accounting Standards Board (FASB).
2- The Securities and Exchange Commission SEC).
3- The International Accounting Standards Board (IASB)
if cash is given for a service, its cost is measured as the amount of cash paid
Revenue Recognition Principle:-
It provides guidance on when a company must recognize revenue.
Recognize revenue when it is earned.
Matching Principle (expense recognition principle):-
A company must record its expenses incurred to generate the revenue reported
Full Disclosure Principle:-
A company is required to report the details behind financial statements that would impact users’ decisions.
Reflects assumption that the business will continue operating instead of being closed or sold.
Business Entity Assumption
A business is accounted for separately from other business entities, including its owner.
Monetary Unit Assumption
Express transactions and events in monetary, or money, units.
Time Period Assumption
Presumes that the life of a company can be divided into time periods, such as months and years.
Types and forms of business entities
1- sole proprietorship:-
It is owned by one person.It is not a separate legal unit from its owner
2- a partnership:-
It is owned by two persons or more called partners. It is a separate legal unit
3- a corporation:-
It is owned by stockholders
The capital of corporation is divided into parts , each part is called share or stock. Stocks consists of common stocks and preferred st