Accounting: a systematic recording of business transaction in orderly manner so as to report on the financial performance of an entity over a period of time

and the financial condition at a given point of time. Systematic: has subsystems has structures, integration Record: act as a financial secretary taking minute notes at a meeting Transaction: any activity that has financial effects Issue report: puplished financial statements. *3 Reports: 1- performance (profit)- Income statement 2-performance (cash)- Cash flow sheet 3-financial (condition) position- Balance sheet Profit= revenue cost Intity: who is account we are doing it for- point of reference Period: space of time marking the beginning and the ending Assets: something you own- belong to you Liability: something you owe- does not belong to you Owners equity: something you owe to the owners with no intention to pay back- example- the capital Assets= liability + Equity Income statement= revenue expence Accounting increase and decreas in 3 dimentions

Transaction has Increase (+) equity. or decrease (-) effects on Assets, liability, owners

Assets: debit +, credit Liabilities: debit -, credit+ Owners equity: debit -, credit + In arithmetic the changes only in 2 dimensions, unlike in accounting which is in 3 dimensions. Increase or decrease does not mean debit or credit. Revenue-expenses=profit=income Income=revenue-expenses Revenue value you earn without charging expenses cost. Not all revenue profit Revenue= earned. Receiving not necessary you receive the money. Means you perform your obligation Incurred vs. paid Revenue-expenses Earned Receiving incurred paid

Bases: 1-accrual cash or non cash- income statement 2-cash- cash statement

4 adjustments to reconcile accrual with cash 1. 2. 3. 4. Earned income, not received cash Received cash, not earned revenue ( received in advanced) Incur expense, not pay it ( we owe) Paid , expense not incurred.

When we measure income, only revenue earned-expenses occurred Is there is revenue earned before the time period and got paid in the time period, we do not include it. Income statement only revenue earned expenses occurred for the period of time Cash flow: cash received and cash paid for the period of time Performance: period of time. Recording transaction: 1. 2. 3. 4. 5. 6. 7. Identify the transaction Journalize the transaction Post to ledger accts Balance ledger accts Extract trail balance Adjustment ( 4 adjustment)- adjustment trail balance Report: income statement- cash flow- balance sheet