Introduction to Principles of Accounting (Forms 1–4)

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Foreign Languages 1–4

Introduction to Principles of Accounting (Forms 1–4)

Covers basic terms, types of businesses and organisations, importance of accounting, and users of accounting information.

📘 Topic Summary

This study guide covers the fundamental principles of accounting, including the importance of accounting, types of businesses and organizations, and users of accounting information.

📖 Glossary

Assets: Resources owned or controlled by a business.
Liabilities: Debts or obligations owed by a business.
Equity: The ownership interest in a business.
Revenue: Income earned by a business from its normal operations.
Expenses: Costs incurred by a business to generate revenue.

⭐ Key Points

Accounting is the language of business, providing stakeholders with financial information.
Businesses can be classified as sole proprietorships, partnerships, corporations, or non-profit organizations.
The primary users of accounting information are investors, creditors, and management.
Financial statements include balance sheets, income statements, and cash flow statements.
Accounting principles aim to provide a consistent and reliable framework for financial reporting.

🔍 Subtopics

Accounting Principles

Accounting principles are the foundation of accounting, providing a framework for preparing financial statements and making decisions. Generally Accepted Accounting Principles (GAAP) is a set of rules and guidelines that ensure consistency and comparability among financial reports. The main accounting principles include accrual, matching, materiality, consistency, going concern, and prudence. These principles guide the preparation of financial statements and help stakeholders make informed decisions.

Financial Statements

Financial statements are a set of reports that provide information about a company's financial position, performance, and cash flows. The main financial statements include the balance sheet, income statement, statement of cash flows, and statement of changes in equity. These statements help stakeholders evaluate a company's financial health, profitability, and liquidity.

Assets and Liabilities

Assets are resources owned or controlled by a business, such as cash, accounts receivable, inventory, property, and equipment. Liabilities are debts or obligations that a business must pay or settle in the future, including accounts payable, loans, and taxes owed. Assets and liabilities are recorded on the balance sheet to provide a snapshot of a company's financial position.

Equity and Revenue

Equity represents the ownership interest in a business, including common stock, retained earnings, and dividends. Revenue is income earned from normal business activities, such as sales, services, and interest. Equity and revenue are recorded on the balance sheet and income statement to provide insights into a company's financial performance.

Expenses and Cash Flow

Expenses are costs incurred by a business in the normal course of operations, such as salaries, rent, and supplies. Cash flow is the movement of cash into or out of a business, including inflows from revenue and outflows for expenses and investments. Expenses and cash flow are recorded on the income statement and statement of cash flows to provide insights into a company's financial performance.

Accounting for Non-Current Assets

Non-current assets are resources that will not be converted into cash within one year or within the company's normal operating cycle. Examples include property, equipment, and investments. These assets are recorded at their historical cost minus accumulated depreciation.

Accounting for Intangible Assets

Intangible assets are non-physical resources that have value to a business, such as patents, copyrights, and trademarks. These assets are recorded at their historical cost and amortized over their useful life.

Accounting for Current Liabilities

Current liabilities are debts or obligations that must be paid within one year or within the company's normal operating cycle. Examples include accounts payable, taxes owed, and loans due. These liabilities are recorded at their historical cost and settled when due.

Accounting for Non-Current Liabilities

Non-current liabilities are debts or obligations that will not be paid within one year or within the company's normal operating cycle. Examples include long-term loans, bonds, and mortgages. These liabilities are recorded at their historical cost and settled over time.

Accounting for Equity

Equity represents the ownership interest in a business, including common stock, retained earnings, and dividends. Equity is recorded on the balance sheet and reflects the company's financial performance and position.

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