Topic 1: Accounting in general

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Accounting

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Accounting is a process designed to generate financial information to support decision-making. It involves collecting and recording financial data, reporting, analyzing, interpreting financial information, and advising users about possible courses of action to aid decision-making.

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Step 1: Source documents

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Source documents provide evidence of a transaction and include receipts, invoices, EFTs, and memos.

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Step 2: Recording

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Once source documents are collected, data is recorded in a more usable form, such as in a General Journal, General Ledger, or Inventory Card.

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Step 3: Reporting

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Involves preparing financial statements like Cash Flow Statement, Income Statement, and Balance Sheet to communicate financial information.

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Step 4: Advice

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Reports provide information for informed decisions, considering non-financial information and ethical considerations.

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Accounting report:
Cash Flow Statement

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Reports on the firm’s cash inflows and outflows, and the change in its cash balance over a period.

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Accounting report:
Balance Sheet

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Reports on the firm’s assets and liabilities at a particular point in time.

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Accounting report:
Income Statement

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Reports on the firm’s revenues, expenses, and profit from its trading activities over a period.

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Distinguish between Financial Data and Financial Information

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• - Financial Data: The raw facts and figures on which financial information will be based.

• - Financial Information: Financial data that has been sorted, classified, and summarized into a more usable and understandable form.

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Financial Information

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The quality of accounting information directly impacts business decisions. A framework ensures reliable financial information, including: - Accounting Assumptions - Qualitative Characteristics - Accounting Elements