Study Unit 1 Summary - Basic Principles of Accounting
1. What is Accounting?
Accounting is the systematic recording, reporting, and analysis of financial transactions. It helps
users make informed decisions by answering key questions such as:
- Did the business make a profit or loss?
- What are its income and expenses?
- What are its assets and liabilities?
2. Accounting vs Bookkeeping
Bookkeeping is the daily recording of financial transactions. Accounting includes bookkeeping, and
adds analysis, interpretation, and reporting via financial statements.
3. Users of Financial Information
User Information Need
Clients/Customers Assess entity's ability to continue
Employees Assess job and salary security
Government Taxation and policy decisions
Investors Risk and return on investments
Lenders Ability to repay loans
Suppliers Creditworthiness
Management Planning and control
Public Entity's contribution to society
4. Fields of Accounting
Field Purpose
Financial Accounting Provides financial info to external users
Management Accounting Provides internal decision-making data
5. Qualitative Characteristics of Financial Info
Characteristic Description
Relevance Influences economic decisions (predictive/confirmatory)
Faithful Representation Complete, neutral, and error-free info
Comparability Consistency over time/entities
Verifiability Info can be confirmed (direct or indirect)
Timeliness Up-to-date and available when needed
Understandability Clear to reasonably informed users
6. Elements of Financial Statements
Category Elements
Financial Position Assets, Liabilities, Equity
Performance Income, Expenses
7. Measurement Bases
1. What is Accounting?
Accounting is the systematic recording, reporting, and analysis of financial transactions. It helps
users make informed decisions by answering key questions such as:
- Did the business make a profit or loss?
- What are its income and expenses?
- What are its assets and liabilities?
2. Accounting vs Bookkeeping
Bookkeeping is the daily recording of financial transactions. Accounting includes bookkeeping, and
adds analysis, interpretation, and reporting via financial statements.
3. Users of Financial Information
User Information Need
Clients/Customers Assess entity's ability to continue
Employees Assess job and salary security
Government Taxation and policy decisions
Investors Risk and return on investments
Lenders Ability to repay loans
Suppliers Creditworthiness
Management Planning and control
Public Entity's contribution to society
4. Fields of Accounting
Field Purpose
Financial Accounting Provides financial info to external users
Management Accounting Provides internal decision-making data
5. Qualitative Characteristics of Financial Info
Characteristic Description
Relevance Influences economic decisions (predictive/confirmatory)
Faithful Representation Complete, neutral, and error-free info
Comparability Consistency over time/entities
Verifiability Info can be confirmed (direct or indirect)
Timeliness Up-to-date and available when needed
Understandability Clear to reasonably informed users
6. Elements of Financial Statements
Category Elements
Financial Position Assets, Liabilities, Equity
Performance Income, Expenses
7. Measurement Bases
