home..

Accounting-101

(93 Words, 1 Minutes)

Financial Accounting: The process of identifying, recording, summarising and analysing an entity’s financial transactions and reporting them in financial statements

• Core principle of Financial accounting -> Stuff that a business owns = Stuff that a business owes
• Accounting Equation

  • ASSETS = LIABILITIES (for 3rd parties) + EQUITY (for owners)

    Accounting Cycle:

• Step 1: Identifying transactions
• Step 2: Journal entry
• Step 3: Post to General Ledger
  • General Ledger - A database that stores a complete record of accounts & journal entries
  • account = a place where we record, sort and store all financial transactions that affect a related group of items
  • 6 types of accounts
    • assets, liabilities, equity, revenue, expenses, dividends
• Step 4: Put together unaccounted TRIAL BALANCE
  • TRIAL BALANCE = an accounting report showing the closing balances of all general ledger accounts
• Step 5: Adjusting entries
  • journal entries posted at the end of an accounting period to bring a business’s book in line with the accrual method of accounting
• Step 6: Adjusted Trial Balance
• Step 7: Create Financial Statements

• Step 8: Post closing entries

  IFRS vs GAAP: IFRS - International Financial Reporting Standards GAAP - General Accepted Accounting Principles

• Accrual Method: Revenue is recognised as it’s earned, Expenses are recorded as they are incurred

  Financial Statements

• Balance Sheet - snapshot of business’s assets, equity and liabilities at a single point in time
• Income Statement - summarises revenues and expenses over a period of time
• CashFlow Statement - summarises cash inflows and outflows over a period of time