📘 1. Definition and Objectives of Accounting

🔹 Definition

Accounting is the process of recording, classifying, summarizing, and interpreting financial transactions of a business to provide useful financial information for decision-making.

🔹 Objectives of Accounting

1. Record Transactions systematically.

2. Provide Financial Statements (Income Statement, Balance Sheet, Cash Flow Statement).

3. Aid in Decision-Making for internal and external stakeholders.

4. Ensure Legal Compliance with tax, corporate, and reporting laws.

5. Track Financial Performance and Position over time.

📌 Goal: To deliver accurate, reliable, and timely financial information.

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👥 2. Users of Accounting Information

Accounting information serves a wide range of internal and external users, each with different needs.

🔸 A. Internal Users

🔸 B. External Users

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📜 3. Basic Accounting Principles and Concepts

These are the foundation rules that govern how accounting is practiced.

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🔹 A. GAAP (Generally Accepted Accounting Principles)

• U.S.-based set of standards issued primarily by FASB (Financial Accounting Standards Board).

• Principles include:

  • Accrual Basis: Record revenues and expenses when incurred, not when cash changes hands.

  • Consistency: Apply the same methods over time.

  • Going Concern: Assume the business will continue to operate.

  • Materiality: Only significant information is required to be reported.

  • Conservatism: Do not overstate income or assets.

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🔹 B. IFRS (International Financial Reporting Standards)

• Global accounting framework issued by the IASB (International Accounting Standards Board).

• More principles-based (flexible), compared to GAAP which is more rules-based.

• Used in over 140 countries including the EU, Canada, Australia, and many parts of Asia and Africa.

🔹 Key Concepts Under Both GAAP and IFRS

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⚖️ 4. The Accounting Equation

The fundamental equation of accounting is:

$$\text{Assets}=\text{Liabilities}+\text{Equity}$$

🔹 Definitions:

• Assets: Resources the business owns (cash, inventory, equipment).

• Liabilities: Obligations the business owes (loans, accounts payable).

• Equity: Owner’s claim after liabilities (capital, retained earnings).

🔁 Every financial transaction impacts this equation.

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🔹 Example:

Initial Investment:

• Owner invests $50,000 in cash.
  → Cash (Asset) ↑ $50,000 = Capital (Equity) ↑ $50,000

Buy Equipment for $20,000 Cash:
→ Equipment ↑ $20,000, Cash ↓ $20,000 (Assets stay balanced)

Take a Loan of $30,000:
→ Cash ↑ $30,000 = Liabilities ↑ $30,000

Final Equation:

$$\text{Assets}(Cash+Equipment)=\text{Liabilities (Loan)}+\text{Equity (Capital)}$$ $$(60,000+20,000)=30,000+50,000$$

✔️ Balanced: $80,000 = $80,000

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🧾 Summary Table