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Definition
Accounting provides financial information about an economic entity (any unit that
exists independently), which will enable us to make better economic decisions.
Bookkeeping is the process of recording transactions and keeping financial records.
(In the past: Keep in books; In the present: Computers)
Recording All daily transactions of firms are carefully recorded and become
Transactions accounting data
Classifying Data Accounting data are classified according to their nature
Summarising Accounting data are summarised to provide relevant information for
Data users and they are presented in different types of financial statements
Income Statement -> Summarise Financial Performance
Balance Sheet -> Summarise the Financial Position of a business
Communicating Users are provided with financial statement
Information Accountants extract relevant information when communicating to
different users and explain the key results with terms, graphs and ratios
Different users have different concerns, so it is not easily understand by
the public
Importance of Accounting
Accounting provides financial information about a business -> Useful for decision
making
Different people and organization (stakeholder) need this information (E.g. Business
Owners, Management, Potential Investors, Inland Revenue Department)
If there is no accounting, people will not know the actual financial situation, it will be
unable to make informed decisions
The Accounting Cycle is a series of standard procedures for the recording and processing of
a firm’s accounting data in a certain period, usually a year. The same procedures have to be
repeated period after period.