What is accounting?

Accounting is a reliable process for recording, organizing and analyzing financial information which
helps in the effective management of the business.

Consists of three basic activities

it identifies, Records, and communicates the economic events of an organization to interested users.

Who Uses Accounting Data?

1- Internal User
2- External User

Internal users of accounting data are managers who plan, organize, and run the
business.
These include marketing managers, production supervisors, finance directors, and
company officers.

External users are individuals and organizations outside a company who want
financial information about the company.

The two most common types of external users are

Investors: (Owners) to make decision to buy hold or sell ownership shares of company.

Creditors: (suppliers and bankers) use accounting data to evaluate the risks of granting credit or lending money.

Generally Accepted Accounting Principles

Generally accepted accounting principles (GAAP) refer to a common set of accepted accounting
principles, standards, and procedures that companies and their accountants must follow when they
compile their financial statements.

GAAP is a combination of authoritative standards (set by policy boards) and the commonly accepted
ways of recording and reporting accounting information.

Measurement of Principles
1.) Cost principle
2.) Fair Value principle
10 Assumptions

1.) Economic Entity Assumption

2.) Monetary Unit Assumption
3.) Time Period Assumption
4.) Cost Principle
5.) Full Disclosure Principle
6.) Going Concern Principle
 7.) Matching Principle 10.) Conservatism
8.) Revenue Recognition Principle
9.) Materiality
Business Enterprises

Proprietorship: A business owned by one person is generally a proprietorship.

Partnership: A business owned by two or more persons associated as partners is a partnership.

Corporation: A business organized as a separate legal entity under State Corporation Law and having
ownership divided into transferable shares of stock is a corporation.