DEFINIT

ION O

F

ACCOUNTING

FINANCIAL ACCOUNTING

1- Accounting in Action2- The Recording Process3- Adjusting the Accounting4- Competing the Accounting

Cycle

NABIL ABD ELRAOUF

www.drnabil4362.wordpress.com

• Is the art of communicating financial information about a business entity to users such as shareholders and managers.

• The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management.

• It is the branch of mathematical science that is useful in discovering the causes of success and failure in business.

• The principles of accountancy are applied to business entities in three divisions of practical art, named

• accounting, bookkeeping, and auditing.

Accounting

Is defined by the AICPA as : "The art of recording, classifying, and summarizing in terms of money,

transactions and events which are, in part at least, of financial character, and interpreting the results thereof."

Nature of Financial Accounting

Accounting may best be defined by describing the three essential characteristics of accounting:

(1) Identification, measurement, and communication of financial information about

(2) economic entities to (3) Interested persons.

Understand the Accounting Framework

• What Does Accounting Cycle Mean?The name given to the collective process of recording and processing the accounting events of a company. The series of steps begin when a transaction occurs and end with its inclusion in the financial statements. The nine steps of the accounting cycle are: 

• Collecting and analyzing data from transactions and events.

• Putting transactions into the general journal.

• Posting entries to the general ledger. • Preparing an unadjusted trial balance. • Adjusting entries appropriately. • Preparing an adjusted trial balance. • Organizing the accounts into the financial

statements. • Closing the books. • Preparing a post-closing trial balance to

check the accounts.

Account TypeNormal Balance Increase Decrease

Asset Debit Debit Credit

Liability Credit Credit DebitStockholder’s

Equity Credit Credit Debit

Revenue Credit Credit Debit

Expense Debit Debit Credit

Common Stock Credit Credit DebitRetained Earnings Credit Credit Debit

Dividends Debit Debit Credit

• Accounting Journal Entries Illustratedillustrate the process, let's review how (AYX) started his business on January 1, 2007, and record those transactions in the general journal.

• Jan. 1 (AYX) invested $50,000 into his new business, (AYX) Sunglasses Shop , putting in cash.

• Jan. 1 Purchased inventory for $4,500. Paid $3,000 cash, with the balance of $1,500 due in 90 days.

• Jan. 1 Purchased land for $20,000 with $2,000 as a down payment, and a 15 year mortgage for $18,000.

• Jan. 1 to paid as insurance for the year for $2,400.

• Sample General Ledger Journal EntryAs a quick recap, the following transactions occurred on January 1, 2007 to start (AYX) Sunglasses Shop:– Jan. 1 (AYX) invested $50,000 into his new

business, (AYX) Sunglasses Shop.– Jan. 1 purchased inventory for $4,500. Paid

$3,000 cash, with the balance of $1,500 due in 90 days.

– Jan. 1 purchased land for $20,000 with $2,000 as a down payment, and a 15 year mortgage for $18,000.

– Jan. 1 Purchased insurance for the year for $2,400.