Intro to Financial Accounting — Complete Study Notes
INTRO TO FINANCIAL ACCOUNTING
Complete Course Summary & Study Notes
Covers: the accounting equation · financial statements · the accounting cycle · adjusting entries · revenue recognition ·
inventory costing · depreciation · financial statement analysis
Ideal for exam revision, quizzes, and end-of-course review
Page 1 of 7
, Intro to Financial Accounting — Complete Study Notes
1. Foundations of Accounting
1.1 What Accounting Does
Financial accounting is the process of recording, summarizing, and reporting a business's transactions so that
people outside the company — investors, lenders, regulators — can understand its financial position and
performance. The output of this process is a set of financial statements prepared on a recurring basis (usually
quarterly and annually).
1.2 The Accounting Equation
Every transaction a business records must keep this equation in balance. It is the foundation that double-entry
bookkeeping is built on.
Assets = Liabilities + Equity
• Assets — resources the company owns or controls that will provide future economic benefit (cash, inventory,
equipment, accounts receivable).
• Liabilities — obligations the company owes to outsiders (loans, accounts payable, unearned revenue).
• Equity — the owners' residual claim on the assets after liabilities are subtracted; grows with net income and
owner contributions, shrinks with net losses and withdrawals/dividends.
1.3 Key Accounting Assumptions & Principles
Principle What it means
Going concern Assumes the business will continue operating for the foreseeable
future
Historical cost Assets are recorded at their original purchase price, not current
market value
Revenue recognition Revenue is recorded when it is earned, not necessarily when cash is
received
Matching principle Expenses are recorded in the same period as the revenue they helped
generate
Full disclosure All information that could affect a reader's decisions must be
disclosed
Consistency The same accounting methods should be used from period to period
2. The Four Core Financial Statements
2.1 Income Statement
Reports revenues and expenses over a period of time to show whether the company was profitable.
Page 2 of 7
INTRO TO FINANCIAL ACCOUNTING
Complete Course Summary & Study Notes
Covers: the accounting equation · financial statements · the accounting cycle · adjusting entries · revenue recognition ·
inventory costing · depreciation · financial statement analysis
Ideal for exam revision, quizzes, and end-of-course review
Page 1 of 7
, Intro to Financial Accounting — Complete Study Notes
1. Foundations of Accounting
1.1 What Accounting Does
Financial accounting is the process of recording, summarizing, and reporting a business's transactions so that
people outside the company — investors, lenders, regulators — can understand its financial position and
performance. The output of this process is a set of financial statements prepared on a recurring basis (usually
quarterly and annually).
1.2 The Accounting Equation
Every transaction a business records must keep this equation in balance. It is the foundation that double-entry
bookkeeping is built on.
Assets = Liabilities + Equity
• Assets — resources the company owns or controls that will provide future economic benefit (cash, inventory,
equipment, accounts receivable).
• Liabilities — obligations the company owes to outsiders (loans, accounts payable, unearned revenue).
• Equity — the owners' residual claim on the assets after liabilities are subtracted; grows with net income and
owner contributions, shrinks with net losses and withdrawals/dividends.
1.3 Key Accounting Assumptions & Principles
Principle What it means
Going concern Assumes the business will continue operating for the foreseeable
future
Historical cost Assets are recorded at their original purchase price, not current
market value
Revenue recognition Revenue is recorded when it is earned, not necessarily when cash is
received
Matching principle Expenses are recorded in the same period as the revenue they helped
generate
Full disclosure All information that could affect a reader's decisions must be
disclosed
Consistency The same accounting methods should be used from period to period
2. The Four Core Financial Statements
2.1 Income Statement
Reports revenues and expenses over a period of time to show whether the company was profitable.
Page 2 of 7
