08/28/2025
𝐖𝐡𝐚𝐭 𝐈𝐬 𝐀𝐜𝐜𝐨𝐮𝐧𝐭𝐢𝐧𝐠?
Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business. It helps stakeholders understand the financial health and performance of an organization.
𝐅𝐮𝐧𝐝𝐚𝐦𝐞𝐧𝐭𝐚𝐥 𝐀𝐜𝐜𝐨𝐮𝐧𝐭𝐢𝐧𝐠 𝐂𝐨𝐧𝐜𝐞𝐩𝐭𝐬
These are the building blocks of accounting:
✅ 𝐀𝐜𝐜𝐫𝐮𝐚𝐥 𝐏𝐫𝐢𝐧𝐜𝐢𝐩𝐥𝐞: Transactions are recorded when they occur, not when cash is exchanged.
✅𝐂𝐨𝐧𝐬𝐢𝐬𝐭𝐞𝐧𝐜𝐲 𝐏𝐫𝐢𝐧𝐜𝐢𝐩𝐥𝐞: Use the same accounting methods over time.
✅𝐆𝐨𝐢𝐧𝐠 𝐂𝐨𝐧𝐜𝐞𝐫𝐧 𝐏𝐫𝐢𝐧𝐜𝐢𝐩𝐥𝐞: Assumes the business will continue operating.
✅𝐌𝐚𝐭𝐜𝐡𝐢𝐧𝐠 𝐏𝐫𝐢𝐧𝐜𝐢𝐩𝐥𝐞: Expenses are matched with related revenues in the same period.
✅𝐑𝐞𝐯𝐞𝐧𝐮𝐞 𝐑𝐞𝐜𝐨𝐠𝐧𝐢𝐭𝐢𝐨𝐧 𝐏𝐫𝐢𝐧𝐜𝐢𝐩𝐥𝐞: Revenue is recognized when earned, not when received.
𝐓𝐡𝐞 𝐁𝐚𝐬𝐢𝐜 𝐀𝐜𝐜𝐨𝐮𝐧𝐭𝐢𝐧𝐠 𝐄𝐪𝐮𝐚𝐭𝐢𝐨𝐧
This equation is the foundation of double-entry bookkeeping:
𝐀𝐬𝐬𝐞𝐭𝐬 = 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬 + 𝐎𝐰𝐧𝐞𝐫’𝐬 𝐄𝐪𝐮𝐢𝐭𝐲
𝐀𝐬𝐬𝐞𝐭𝐬: What the business owns (e.g., cash, inventory).
𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬: What the business owes (e.g., loans, accounts payable).
𝐎𝐰𝐧𝐞𝐫’𝐬 𝐄𝐪𝐮𝐢𝐭𝐲: The owner's claim after liabilities are subtracted from assets.
𝐊𝐞𝐲 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐒𝐭𝐚𝐭𝐞𝐦𝐞𝐧𝐭𝐬
☑️ 𝓘𝓷𝓬𝓸𝓶𝓮 𝓢𝓽𝓪𝓽𝓮𝓶𝓮𝓷𝓽: Shows revenue, expenses, and profit/loss over a period.
☑️ 𝓑𝓪𝓵𝓪𝓷𝓬𝓮 𝓢𝓱𝓮𝓮𝓽: Snapshot of assets, liabilities, and equity at a specific date.
☑️ 𝓒𝓪𝓼𝓱 𝓕𝓵𝓸𝔀 𝓢𝓽𝓪𝓽𝓮𝓶𝓮𝓷𝓽: Tracks cash inflows and outflows from operations, investing, and financing.
𝐄𝐬𝐬𝐞𝐧𝐭𝐢𝐚𝐥 𝐀𝐜𝐜𝐨𝐮𝐧𝐭𝐢𝐧𝐠 𝐓𝐞𝐫𝐦𝐬
𝐑𝐞𝐯𝐞𝐧𝐮𝐞: Income from sales or services.
𝐄𝐱𝐩𝐞𝐧𝐬𝐞𝐬: Costs incurred to generate revenue.
𝐃𝐞𝐛𝐢𝐭𝐬 𝐚𝐧𝐝 𝐂𝐫𝐞𝐝𝐢𝐭𝐬: The dual entries used in double-entry accounting.
𝐉𝐨𝐮𝐫𝐧𝐚𝐥 𝐄𝐧𝐭𝐫𝐢𝐞𝐬: Initial recording of transactions.
𝐋𝐞𝐝𝐠𝐞𝐫: Where journal entries are posted and categorized.
Accounting Knowledge Concepts
