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Reviewer-Introduction to Accounting

This document provides an introduction to accounting, defining it as the systematic process of recording and interpreting financial transactions. It outlines the objectives, importance, basic terms, users, branches, and limitations of accounting. Understanding these fundamentals is crucial for effective business decision-making.

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12 views2 pages

Reviewer-Introduction to Accounting

This document provides an introduction to accounting, defining it as the systematic process of recording and interpreting financial transactions. It outlines the objectives, importance, basic terms, users, branches, and limitations of accounting. Understanding these fundamentals is crucial for effective business decision-making.

Uploaded by

jemardenecastano
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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📘 Lesson 1: Introduction to Accounting

1.1 What is Accounting?

Accounting is often referred to as the "language of business." It involves the systematic process of
recording, classifying, summarizing, and interpreting financial transactions to provide information that is
useful in making business decisions.

1.2 Objectives of Accounting

The primary objectives of accounting include:

 Recording Transactions: Systematically documenting all financial transactions.

 Classifying Data: Organizing transactions into categories for analysis.

 Summarizing Information: Preparing financial statements that summarize the financial activities.

 Interpreting Results: Analyzing financial data to make informed decisions.

1.3 Importance of Accounting

Accounting plays a crucial role in:

 Decision Making: Providing financial information to stakeholders for informed decisions.

 Compliance: Ensuring adherence to financial regulations and standards.

 Performance Evaluation: Assessing the financial performance and position of a business.

 Resource Management: Aiding in budgeting and controlling financial resources

1.4 Basic Accounting Terms

 Assets: Resources owned by a business (e.g., cash, inventory).

 Liabilities: Obligations or debts owed to outsiders.

 Equity: Owner's claim on the assets after liabilities are settled.

 Revenue: Income earned from business activities.

 Expenses: Costs incurred in the process of earning revenue.

1.5 Users of Accounting Information


 Internal Users: Management, employees, and owners who use information for decision-making
within the organization.

 External Users: Investors, creditors, regulatory agencies, and others who need information to
make decisions about the organization.

1.6 Branches of Accounting

 Financial Accounting: Focuses on preparing financial statements for external users.

 Managerial Accounting: Provides information for internal decision-making.

 Cost Accounting: Analyzes the cost of production and operations.

 Tax Accounting: Deals with tax-related matters and compliance.

1.7 Limitations of Accounting

While accounting provides valuable information, it has limitations:

 Historical Nature: Primarily records past transactions, not future predictions.

 Estimates and Judgments: Involves estimations that may not be precise.

 Non-Monetary Factors: Does not account for qualitative factors like employee satisfaction.

1.8 Conclusion

Understanding the basics of accounting is essential for anyone involved in business. It provides the
foundation for analyzing financial information and making informed decisions.

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