Accounting

Accounting

The systematic process of identifying, recording, measuring, classifying, summarizing, and communicating financial information about an economic entity. Accounting provides useful information to investors, creditors, managers, regulators, and other users for decision-making.

Financial Accounting

A branch of accounting focused on preparing financial reports for external users such as investors, lenders, governments, and regulatory bodies. It follows established accounting standards, such as IFRS, to ensure financial statements are reliable, consistent, and comparable.

Managerial Accounting

A branch of accounting that provides financial and non-financial information to internal users, especially managers, to assist with planning, controlling, budgeting, and decision-making. Unlike financial accounting, it is not required to follow IFRS.

International Financial Reporting Standards (IFRS)

A globally recognized set of accounting standards issued by the International Accounting Standards Board (IASB). IFRS establishes rules for how companies recognize, measure, present, and disclose financial information.

International Accounting Standards (IAS)

Accounting standards issued before the creation of IFRS. Many IAS standards remain active and form part of the current IFRS framework unless replaced by newer standards.

International Accounting Standards Board (IASB)

The independent organization responsible for developing and maintaining IFRS. Its purpose is to create globally accepted accounting standards that improve transparency and comparability of financial reporting.

Generally Accepted Accounting Principles (GAAP)

A collection of accounting rules and principles used in some countries to prepare financial statements. Unlike IFRS, GAAP may vary between countries.

Accounting Entity Concept

The principle that a business is treated as a separate legal and accounting entity from its owners. Personal transactions of owners must not be included in business records.

Economic Entity Assumption

The assumption that the financial activities of a business must be recorded separately from the personal activities of its owners or other organizations.

Going Concern Concept

The assumption that a business will continue operating for the foreseeable future and does not intend or need to liquidate its assets or cease operations.

Accrual Basis Accounting

An accounting method where transactions are recorded when they occur economically rather than when cash is received or paid. It provides a more accurate representation of financial performance.

Cash Basis Accounting

An accounting method where transactions are recorded only when cash is received or paid. It is simpler but may not accurately show the true financial position of a business.

Historical Cost Concept

The accounting principle that assets should initially be recorded at their original purchase cost rather than their current market value. This improves reliability because the cost can usually be verified.

Fair Value

The estimated price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Cost Principle

The principle that accounting records should be based on objective and measurable costs rather than subjective estimates.

Matching Principle

The accounting principle requiring expenses to be recognized in the same period as the revenues they helped generate.

Revenue Recognition Principle

The principle that revenue should be recognized when a company satisfies its performance obligations by transferring goods or services to customers, not simply when cash is received.

Expense Recognition Principle

The principle that expenses should be recorded when the related economic benefits are consumed or when the obligation occurs.

Materiality

The concept that financial information is material if omitting or misstating it could influence the decisions of users of financial statements.

Consistency Principle

The requirement that companies use the same accounting methods and procedures from period to period unless a justified change is necessary.

Comparability

The quality of financial information that allows users to compare financial performance and position between companies or accounting periods.

Reliability

The quality of accounting information that ensures it is accurate, verifiable, and free from significant error or bias.

Faithful Representation

The requirement that financial information accurately reflects the economic events and transactions it represents.

Relevance

The quality of information that makes it useful for decision-making because it can influence users' judgments and decisions.

Prudence (Conservatism)

The accounting principle of exercising caution when making estimates so that assets and income are not overstated and liabilities and expenses are not understated.

Objectivity

The principle that accounting information should be supported by evidence and documentation, such as invoices, receipts, contracts, and bank records.

Accounting Period Concept

The assumption that the continuous life of a business can be divided into reporting periods, such as months, quarters, or years, for measuring performance.

Monetary Unit Assumption

The principle that only transactions that can be measured reliably in monetary terms are recorded in accounting records.

Dual Aspect Concept

The accounting principle stating that every transaction has two effects and must maintain the balance of the accounting equation.

Accounting Equation

The fundamental accounting relationship stating that Assets = Liabilities + Equity. It shows that resources owned by a business are financed either by creditors or owners.

Asset

A resource controlled by a business as a result of past events that is expected to provide future economic benefits.

Liability

A present obligation of a business arising from past events that is expected to result in an outflow of economic resources in the future.

Equity

The residual interest in the assets of a business after deducting liabilities. It represents the owners' or shareholders' claim on business resources.

Capital

The amount of money or other resources contributed by owners or shareholders to establish or expand a business.

Retained Earnings

The accumulated profits of a company that have been kept in the business rather than distributed to owners as dividends.

Revenue

Income earned from the normal operating activities of a business, such as selling goods or providing services.

Expense

A decrease in economic benefits caused by consuming assets, increasing liabilities, or using resources to generate revenue.

Profit

The financial gain remaining after deducting all expenses from revenue during an accounting period.

Loss

The situation where expenses exceed revenues, resulting in a decrease in equity.

Gain

An increase in equity resulting from activities outside normal business operations, such as selling an asset for more than its carrying amount.

Accounting Standards

Formal rules and guidelines that determine how financial transactions should be recorded, measured, presented, and disclosed.

Financial Reporting

The process of preparing and presenting financial information through financial statements and related disclosures for users who make economic decisions.

Financial Statement

The formal record of a company's financial activities, including its financial position, performance, and cash flows.

External Users

Individuals or organizations outside the company who use financial information, such as investors, creditors, governments, and customers.

Internal Users

People within an organization who use accounting information for decision-making, including managers and executives.