1. Understanding Principles of Accounting
Introduction to Business
Chapter 8
Understanding Principles of Accounting

2. Accounting Users of Accounting Information:
Accounting is the process of collecting, analyzing and communicating financial information.
Bookkeeping: the recording of transactions in the book.
Accounting includes bookkeeping.
Users of Accounting Information:
Business managers
Employees and unions
Investors and creditors
Tax authorities
Government regulatory agencies

3. Managers Creditors Employees Tax Authorities Investors Govt .
Users of Accounting Information
Managers
Creditors
Employees
Tax
Authorities
Investors
Govt .

4. Types of Accounting Systems Managerial (Management) Accounting:
Controller
Manages all of a firm’s accounting activities
Types of Accounting Systems
Financial Accounting:
Accounting concerned with external users of a company’s financial information
Managerial (Management) Accounting:
Accounting concerned with internal users of a company’s financial information

5. The Accounting Equation
Assets = Liabilities + Owners’ Equity (capital/net worth)
Assets – Liabilities = Owners’ Equity
Asset
Any economic resource that is expected to benefit a firm or an individual who owns it
Liability
A debt that the firm owes to an outside party
Owners’ Equity
Money that owners would receive if they sold all of a company’s assets and paid all of its liabilities
Capital = Assets - Liabilities

6. The Double Entry System
Each transaction is recorded with at least:
One debit
One credit
Total debits must equal total credits.

7. Financial Statements
Any of several types of reports summarizing a company’s financial status and measuring its financial health. Or
(The financial statements are a picture of the company in financial terms)
Financial statement includes Balance sheet as well as Trading and profit and loss account.

8. Balance Sheet:
Financial statement detailing a firm’s assets,
liabilities and owners equity.
II. Trading and Profit and Loss Account (Income Statements):
Financial statement listing a firm’s annual
revenues and expenses so that a bottom line
shows annual profit or loss.