UNIT 1 - Accounting

Definition

Definition

The art of recording, classifying, and summarizing financial transactions and events, interpreting the results (AICPA).

Nature

A service primarily engaged in providing financial information for economic decision-making.

Scope

Deals with financial information and transactions.

GAAP

Generally Accepted Accounting Principles that guide accounting practices.

Monetary Measurement

Assumes only transactions expressible in monetary terms are recorded.

Public Accounting

Providing accounting services for other companies.

Auditing

Review of financial statements for fairness and adherence to accounting principles.

Tax Accounting

Involves tax compliance and tax planning for clients.

Management Advisory Services

Helps clients improve information systems and business performance.

Private Accounting

Working for a single business entity in a specific industry.

Governmental Accounting

Keeping financial records for government entities.

Financial Accounting

Provides general-purpose financial reports to external users.

External Audit

Conducted by independent auditors to assess financial statement fairness.

Internal Audit

Evaluates company policies and procedures for weaknesses or fraud.

Cost Accounting

Classifies costs to determine the total cost of products/services.

Managerial Accounting

Provides internal financial reports for decision-making.

Government Accounting

Prepares financial reports for government agencies.

Tax Accounting

Prepares tax returns and ensures compliance.

Accounting Education

Focuses on academic and research aspects of accounting.

Accounting Information System

Collects, stores, and manages financial data for internal users.

Forensic Accounting

Investigates legal affairs, fraud, and claims resolution.

Primary Users

Investors, lenders, suppliers, and other stakeholders who rely on financial information.

Internal Users

Owners, managers, and employees who monitor business performance.

External Users

Tax authorities, regulatory agencies, customers, and unions that rely on financial data.

Financial Intermediaries

Analysts, brokers, mutual funds, and credit-rating agencies assessing business performance.

Sole Proprietorship

A business owned by an individual with unlimited liability.

Partnership

A business owned by two or more individuals sharing profits and liabilities.

Corporation

A separate legal entity with limited liability for stockholders.

Service Business

Provides services rather than goods.

Merchandising Business

Buys and sells goods.

Manufacturing Business

Converts raw materials into finished goods.

Partnership Agreement

Outlines capital investment, profit sharing, and partner responsibilities.

Separate Legal Entity

The business can sue, be sued, and conduct transactions in its own name.