ACC170 – Financial Accounting Full Summary:
Principles, Journal Entries, Statements,
Adjustments, Ratios & Corporate Accounting
1. Fundamental Accounting Concepts and
Framework
The Accounting Equation
The foundation of all financial accounting is the basic accounting equation:
Assets = Liabilities + Owner's Equity
This equation must always balance and represents the financial position of any business entity.
Components Explained:
Assets: Resources owned by the business that have economic value
Liabilities: Debts or obligations owed to external parties
Owner's Equity: The owner's claim on business assets (residual interest)
Generally Accepted Accounting Principles (GAAP)
Key Principles:
Revenue Recognition Principle: Revenue recorded when earned, not when cash
received
Matching Principle: Expenses matched with related revenues in the same period
Full Disclosure Principle: All material information must be disclosed
Consistency Principle: Same accounting methods used from period to period
Materiality Principle: Only significant items require special accounting treatment
Conservatism Principle: When in doubt, choose a method that understates rather than
overstates
Fundamental Assumptions:
Economic Entity Assumption: Business separate from owner
Going Concern Assumption: Business will continue operating
Monetary Unit Assumption: All transactions measured in currency
Time Period Assumption: Business life divided into reporting periods
, 2. The Double-Entry Bookkeeping System
Debits and Credits Rules
Account Types and Normal Balances:
Account Type Normal Balance To Increase To Decrease
Assets Debit Debit Credit
Liabilities Credit Credit Debit
Owner's Equity Credit Credit Debit
Revenues Credit Credit Debit
Expenses Debit Debit Credit
Golden Rule: Total Debits = Total Credits in every transaction
T-Accounts and Journal Entries
T-Account Structure:
Account Name
Left Side (Debit) | Right Side (Credit)
Journal Entry Format:
Date of transaction
Account names and amounts
Brief explanation
Debits listed first, credits indented
Example Transaction: Purchase equipment for $5,000 cash
Equipment 5,000
Cash 5,000
(Purchased equipment for cash)
3. The Accounting Cycle
Steps in the Accounting Cycle
Step 1: Analyze Transactions
Identify accounts affected
Determine whether each account increases or decreases
Principles, Journal Entries, Statements,
Adjustments, Ratios & Corporate Accounting
1. Fundamental Accounting Concepts and
Framework
The Accounting Equation
The foundation of all financial accounting is the basic accounting equation:
Assets = Liabilities + Owner's Equity
This equation must always balance and represents the financial position of any business entity.
Components Explained:
Assets: Resources owned by the business that have economic value
Liabilities: Debts or obligations owed to external parties
Owner's Equity: The owner's claim on business assets (residual interest)
Generally Accepted Accounting Principles (GAAP)
Key Principles:
Revenue Recognition Principle: Revenue recorded when earned, not when cash
received
Matching Principle: Expenses matched with related revenues in the same period
Full Disclosure Principle: All material information must be disclosed
Consistency Principle: Same accounting methods used from period to period
Materiality Principle: Only significant items require special accounting treatment
Conservatism Principle: When in doubt, choose a method that understates rather than
overstates
Fundamental Assumptions:
Economic Entity Assumption: Business separate from owner
Going Concern Assumption: Business will continue operating
Monetary Unit Assumption: All transactions measured in currency
Time Period Assumption: Business life divided into reporting periods
, 2. The Double-Entry Bookkeeping System
Debits and Credits Rules
Account Types and Normal Balances:
Account Type Normal Balance To Increase To Decrease
Assets Debit Debit Credit
Liabilities Credit Credit Debit
Owner's Equity Credit Credit Debit
Revenues Credit Credit Debit
Expenses Debit Debit Credit
Golden Rule: Total Debits = Total Credits in every transaction
T-Accounts and Journal Entries
T-Account Structure:
Account Name
Left Side (Debit) | Right Side (Credit)
Journal Entry Format:
Date of transaction
Account names and amounts
Brief explanation
Debits listed first, credits indented
Example Transaction: Purchase equipment for $5,000 cash
Equipment 5,000
Cash 5,000
(Purchased equipment for cash)
3. The Accounting Cycle
Steps in the Accounting Cycle
Step 1: Analyze Transactions
Identify accounts affected
Determine whether each account increases or decreases
