Course Introduction & Meaning and Scope of Accounting

Vocabulary flashcards summarising the key accounting terms, concepts and entities introduced in the lecture notes.

Accounting

The language of business; a process of recording, classifying and summarizing financial transactions so users can interpret results and make decisions.

Financial Accounting

Branch of accounting that records historical business transactions and prepares external reports such as profit & loss accounts and balance sheets.

Cost Accounting

Branch focused on capturing, analyzing and controlling the costs of producing goods or services.

Management Accounting

Branch that supplies internal management with financial data for planning, controlling and decision-making.

Accounting Framework

The underlying principles, concepts, conventions and standards that guide how accounting information is recorded and reported.

Accounting Process

Sequential steps: identify transaction → prepare voucher → journalize → post to ledger → prepare trial balance → adjust entries → create financial statements.

Journal

The book of original entry where transactions are first recorded in chronological order.

Ledger

A book or digital file containing individual accounts where journal entries are classified and summarized.

Trial Balance

A list of all ledger balances prepared to test the arithmetical accuracy of the books.

Profit & Loss Account

Financial statement that shows a business’s revenues, expenses and resulting profit or loss for a period.

Balance Sheet

Statement that reports a business’s assets, liabilities and capital on a specific date, reflecting its financial position.

Book-keeping

The systematic and orderly recording of day-to-day financial transactions.

Branches of Accounting

The main subdivisions—Financial Accounting, Cost Accounting and Management Accounting.

Objectives of Accounting

To keep systematic records, protect assets, determine profit or loss, show financial position and aid rational decisions.

Users of Financial Statements

Stakeholders who rely on accounting information, including internal users (management) and external users (investors, lenders, government, etc.).

Internal Users

Management group such as the board of directors, partners, managers and officers who need accounting data for planning and control.

External Users

Parties outside the organisation—investors, lenders, suppliers, government agencies, employees, customers and researchers—who use financial reports.

Sole Proprietorship

A business owned and controlled by one individual, who bears unlimited liability.

Partnership Firm

A business owned by two or more persons who share profits and are jointly liable for obligations.

Private Joint Stock Company

A company with a limited number of shareholders and restrictions on share transfers; cannot invite the public to subscribe.

Public Joint Stock Company

A company that can offer its shares to the public and has no transfer restrictions; subject to more regulatory oversight.

Co-operative Society

Voluntary association formed to promote the economic interests of its members on the principle of mutual help.

NGOs & Non-profit Trusts

Organizations established for social, charitable or community purposes rather than profit generation.

Limitations of Accounting

Provides only limited, historical, quantitative information; treats figures as silent terms and may not meet varied managerial information needs.

Assets

Resources controlled by an entity expected to provide future economic benefits, e.g., land, vehicles, investments, bank balance.

Liabilities

Present obligations arising from past events that will result in an outflow of resources, e.g., bank loans, personal loans.

Capital (Reserve & Surplus)

Owner’s equity or residual interest in the business after liabilities are deducted from assets.

Non-current Assets

Long-term resources such as land, buildings, machinery or long-term investments not expected to be converted to cash within a year.

Current Assets

Assets expected to be converted into cash, sold or consumed within one year, e.g., bank balance, inventory.

Long-term Loan

A non-current liability that is repayable over periods longer than one year, such as housing or personal loans.