Principles of accounting

• From American Institute of Certified Public Accountants 


  Accounting - 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 the results thereof;
• American Accounting Association 


  Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information.
• Accounting Standards Council 


  Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision.
• Recording - refers to the routine process of preparing journal entries for business transactions and events in a chronological manner in accordance with accounting rules and standards. This is also known as “journalizing”
• Classifying -  pertains to the grouping of transactions recorded according to class (accounts). Example, all transactions involving cash must be grouped together. This is done by posting the accounts to ledgers.
• Summarizing - involves the preparation of financial statements, namely: balance sheet (statement of financial position), income statement (statement of comprehensive income), statement of changes in equity, statement of cash flows and notes to the financial statements accompanying these statements.
• Interpretation - pertains to the use of accounting information or financial statements of an entity for decision-making.
• Identifying - pertains to the determination of accountable events (business transactions)
• Measuring - involves assignments of accounts or value to the accountable economic transactions and events
• Communicating - refers to the preparation and distribution of accounting reports to potential users of accounting information
• Quantitative information - refers to numbers
• Financial - refers to money
• Economic entities - pertains to business
• Economic decision - pertains to the purpose of accounting
• Acounting is considered both

  art and science
• Accounting is considered as an art because it requires the use of skills and creative judgment (interpretation, presentation problem solving, transparency).
• Net income - is measured by deducting all expenses from all income
• The financial statements also show the inflows and outflows of cash in the different activities of the business (operating, investing, and financing activities).
• Solvency - refers to the entity's ability to pay obligations when the become due
• Liquidity - ability to pay back debts and other liabilities on time (short-term)
• Financial statements provide qualitative, quantitative and financial.
• Financial reports reflect the performance in the previous period that will serve as the basis for future decision-making.
• Generally Accepted Accounting Principles (GAAP) is a set of rules that all publicly traded companies must follow.
• External users
• Managerial Accounting is the process of gathering, analyzing, and presenting information to managers to help them make decisions.
• Cost Accounting - The process of recording, reporting, and analyzing the costs of products and services (manufacturing cost).
• Accounting Information Systems (AIS) is the set of activities, tools, and techniques used to collect, process, and communicate accounting information.
• Lenders - people such as banks or financial institutions who lend money to businesses and individuals.
• Service Business - offers professional skills and expertise of the service provider. It charges the client or customer a fee in exchange of the service rendered
• Merchandising Business - The process of selling goods and services to customers.
• Wholesale price - The price at which a producer sells to a wholesaler.
• Retail price - The price at which a product is sold to the final consumer.
• A distinguishing characteristic of this business as compared to manufacturing is that it does not modify the goods it sells to customers.
• Manufacturing Business - buys goods (raw materials) and convert them into another form (finished goods) before selling them. Usually, selling it in big batches.
• Financial accounting


  Involves recording and classifying business transactions, and preparing and presenting financial statements to be used by internal and external users
• Cost accountants


  Analyze actual costs versus budgets or standards to help determine future courses of action regarding the company's cost management
• External auditing


  Examination of financial statements by an independent party with the purpose of expressing an opinion as to fairness of presentation and compliance with GAAP
• Internal auditing

  Focuses on evaluating the adequacy of a company's internal control structure by testing segregation of duties, policies and procedures, degrees of authorization, and other controls implemented by management
• Fiduciary accounting


  Involves handling of accounts managed by a person entrusted with the custody and management of property of or for the benefit of another person
• Fiduciary accounting

  • Trust accounting
  • Receivership
  • Estate accounting