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? Basic Accounting Notes

This document provides an overview of basic accounting concepts, including the definition, objectives, types, and key terms. It explains the accounting equation, the double-entry system, and common financial statements like the income statement and balance sheet. Additionally, it outlines the differences between accrual and cash basis accounting.

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29 views3 pages

? Basic Accounting Notes

This document provides an overview of basic accounting concepts, including the definition, objectives, types, and key terms. It explains the accounting equation, the double-entry system, and common financial statements like the income statement and balance sheet. Additionally, it outlines the differences between accrual and cash basis accounting.

Uploaded by

sehekog197
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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📘 Basic Accounting Notes

1. Definition of Accounting

Accounting is the process of recording, classifying, summarizing, and interpreting financial


transactions to provide useful information for decision-making.

2. Objectives of Accounting

 To maintain systematic records of financial transactions


 To determine profit or loss
 To determine the financial position (assets, liabilities, capital)
 To provide information to users (owners, investors, management, etc.)

3. Types of Accounting

 Financial Accounting – Focuses on reporting to external users (e.g., income statement,


balance sheet)
 Management Accounting – For internal decision-making
 Cost Accounting – For calculating the cost of production or services
 Tax Accounting – For tax reporting and planning

4. Basic Terms in Accounting

Term Meaning
Asset Resources owned by a business (e.g., cash, equipment, buildings)
Liability Amounts owed to outsiders (e.g., loans, creditors)
Capital/Equity Owner's investment in the business
Revenue Income earned from business operations (e.g., sales, service income)
Expense Costs incurred in earning revenue (e.g., rent, salaries)
Profit Revenue minus Expenses
Loss When expenses exceed revenue

5. Golden Rules of Accounting


There are three types of accounts:

Account
Rule Example
Type
Personal Debit the receiver, Credit the giver Paying a supplier
Real Debit what comes in, Credit what goes out Buying equipment for cash
Debit all expenses and losses, Credit all Recording rent expense or sales
Nominal
incomes and gains income

6. Accounting Equation

Assets = Liabilities + Capital

This equation must always balance. It reflects the financial position of a business.

7. Double-Entry System

 Every transaction affects at least two accounts


 One account is debited, the other is credited
 Ensures that the accounting equation remains balanced

8. Common Financial Statements

Statement Purpose
Income Statement Shows profit or loss over a period
Balance Sheet Shows financial position on a specific date
Cash Flow Statement Shows inflows and outflows of cash

9. Books of Original Entry (Journals)

 Journal: Book where all transactions are recorded initially in chronological order.
 Ledger: Book where transactions are posted from the journal under relevant account
heads.

10. Trial Balance

A list of all ledger balances prepared to check the arithmetical accuracy of accounting records.
11. Accrual vs. Cash Basis

Basis Description
Accrual Records income when earned and expenses when incurred
Cash Records income and expenses only when cash is received or paid

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