AC101 Accounting Concepts and Principles

Accounting

The systematic process of identifying, recording, and communicating financial information about economic activities of a business.

Income Statement (Profit & Loss Statement)

A report that summarizes revenues and expenses, showing profit or loss over a specific period.

Balance Sheet (Statement of Financial Position)

A statement that shows a company's assets, liabilities, and equity at a specific date.

Cash Flow Statement

A statement that reports cash inflows and outflows from operating, investing, and financing activities.

Assets

Resources owned or controlled by a business expected to bring future economic benefits.

Liabilities

Obligations or debts that a business owes to others that must be paid in the future.

Equity

The owner's residual interest or claim on the assets of the business after all liabilities are settled.

Journalizing

The process of recording transactions in a journal.

Posting

The process of transferring debit and credit amounts from journal entries to ledger accounts.

Double Entry Bookkeeping

A system where every transaction affects at least two accounts, requiring that total debits equal total credits.

Accrual Basis of Accounting

An accounting method that records income when earned and expenses when incurred, regardless of cash transactions.

Adjusting Entries

Journal entries made at the end of an accounting period to update the general ledger accounts.

Trial Balance

A list of all account balances at a specific point in time, used to ensure that total debits equal total credits.

Full Disclosure Principle

A principle requiring companies to disclose all material information, ensuring that investors have necessary information.

Matching Principle

A principle that dictates expenses should be recognized in the same period as the revenues they relate to.

Historical Cost Concept

Assets are recorded at their acquisition cost.

Liquidity

The ability of a business to meet its short-term obligations.

Solvency

The ability of a business to meet its long-term obligations.

Sole Proprietorship

A business owned and operated by one individual who is personally liable for its debts.

Partnership

A business owned by two or more persons who share profits and liabilities.

Corporation

A legal entity separate from its owners, providing limited liability to its shareholders.

Service Activities

Business operations focused