Accounting Principles, Concepts, and Systems
Accounting
Accounting is the process of examining, measuring, and analyzing a company’s assets to support decision-making and control. It involves presenting systematically recorded information in a useful format for stakeholders. Accounting techniques produce structured and valuable quantitative information, expressed in currency units, about an entity’s transactions and measurable economic events. This information is then provided to various stakeholders.
Accounting Principles
Duality
Accounting Duality states that all resources of a company are equal to its obligations. This can be represented in the following ways:
- All Resources = All Duties
- All Resources = Third Party Obligations + Owner’s Contributions
This principle is represented in the accounting equation:
Assets = Liabilities + Capital
Assets
Assets are a company’s property and property rights.
Current Assets
Current Assets are assets that are constantly moving or can be easily converted into cash. Examples include:
- Cash
- Bank Deposits
- Merchandise
- Accounts Receivable
- Notes Receivable
Fixed Assets
Fixed Assets, also known as non-current assets, are assets with permanence or fixity, acquired for use and not for sale. Examples include:
- Land
- Buildings
- Furniture and Equipment
- Computer Equipment
- Distribution Equipment
- Security Deposits
- Shares and Securities
Deferred Assets
Deferred Assets are prepaid expenses for which a profitable service is expected in the future. Examples include:
- Installation Costs
- Stationery and Supplies
- Propaganda and Advertising
- Insurance Premiums
- Prepaid Rent
- Prepaid Interest
Liabilities
Liabilities are a company’s debts and obligations.
Current Liabilities
Current Liabilities are debts and obligations due within one year. Examples include:
- Accounts Payable
- Notes Payable
- Accrued Expenses
- Taxes Payable
Long-Term Liabilities
Long-Term Liabilities are debts and liabilities due in more than one year. Examples include:
- Mortgages
- Long-Term Notes Payable
Deferred Liabilities
Deferred Liabilities, also known as deferred credits, are amounts billed in advance for which the company has an obligation to provide a service. These amounts become revenue as time passes. Examples include:
- Revenue Received in Advance
- Interest Collected in Advance
Accounting Information Users
Users of accounting information are divided into two groups: internal and external users.
Internal Users
Internal users include all people working in the company, such as managers, executives, operational staff, and owners directly involved in the company’s management.
External Users
External users include those who have a business, financial, or control relationship with the company. Examples include customers, suppliers, banks, financial institutions, and government agencies.
Accounting Principles
There are 18 accounting principles, including:
- Equity
- Going Concern
- Economic Entity
- Monetary Unit
- Time Period
- Revenue Recognition
- Matching
- Historical Cost
- Objectivity
- Materiality
- Consistency
- Full Disclosure
- Duality
- Financial Statement Articulation
- Objectives of Financial Reporting
Classification of Accounts
Result Accounts
Result accounts are accounting documents that show a company’s income and expenses during a financial period. The difference between income and expenses represents the company’s profit or loss.
Loss Accounts
Loss accounts show the company’s profit or loss. While accessible at any time, they are typically used at year-end. The profit and loss account is calculated using the following headings:
- Results of Operations
- Financial Results
- Extraordinary Results
Accounting Systems
An accounting system is a set of principles and rules that facilitate the understanding and representation of a company and its economic events. There are three types of accounting systems:
Legacy Systems
Legacy systems, also known as historical systems, represent the chronological order of accounting events.
Budget Systems
Budget systems represent the expected financial position of a company. They track changes in expectations before (ex-ante) and after (ex-post) events occur. The difference between the two is called a deviation.
Complementary Systems
Complementary systems extend the information provided by legacy and budget systems. They cannot function independently.
Functions of Accounting
The main function of accounting is to record economic events using standardized principles and rules. This ensures that accounting information is understandable to all users for decision-making.
Purpose of Accounting
According to Accounting Bulletin No. 1 from the Institute of Accountants, the main purpose of accounting is to provide timely, structured, and systematic quantitative information about a company’s operations. This includes considering economic events that affect the company to enable informed social, economic, and political decisions.
Accounting information must be:
- True and Accurate
- Clear
- Complete
- Cost-Effective
- Timely
Accrual Accounting
Accrual accounting recognizes economic events when they occur, regardless of when cash is received or paid. This method provides a more accurate picture of a company’s financial performance.
Realization
, historical cost, Objectivity, Criterion Presidential significance or importance relative uniformity, content fund over form, economic duality, fundamental relationship of financial statements, general objectives finacieras information, Exposure.
Classification of Accounts: Accounts Result: it is an accounting document which sets out the income and expenses that the company has during the financial period, the difference of these will give us the benefit or loss to society. Accounts Lost: charge of showing the profit or loss of the company. Although this account can be accessed at any time of year, normally used to end. The profit and loss account is calculated using the following headings: “Results of Operations-Financial Results-Outstanding Results.
Accounting Systems: An accounting system is the set of principles and rules that facilitate knowledge and adequate representation of the company and economic events that affect it. We can find 3 types of accounting systems, legacy systems or historical heritage and represents the variations in the order in which accounting events occur. BUDGET SYSTEM: represents the estate and they change with the expectations that occur facts (ex-ante) and after they occur (ex-post). The difference between the two leads to a deflection. Complementary systems: extending the information from the previous two can not go, therefore, alone. The main function of accounting is to record economic events, considering a range of existing training to standardize this record, so that the information coming from the accounting is understood by all who use it to make decisions.
The main purpose of accounting is as Bulletin No. 1 Institute of Accountants is to provide quantitative information timely and in a structured and systematic operations of a company, considering the economic events that affect it to allow it and others from making social decisions, economic and políticas. “Because of this accounting information, must meet the requirements of being true, accurate, and clear so that you can be well used by users; complete to provide all the elements necessary to analyze the situation described, economic, so that their cost does not exceed the benefits and opportunities, so that, on that basis, can be taken the necessary steps to improve the efficiency of operations carried out by the company.
Accrual: The economic changes that must be considered in establishing the economic results, are under a year without going to distinguish if they are received or paid during that period. Why etc are actually accepted. The problem: On several occasions, the specialists in the field say that more than once on an accrual basis was “unnatural” in various judicial pronouncements. This is under a fiscal approach, regarding the criteria that are driving from accounting standards. This is a “decoupling” between the accounting and tax criteria, which is not due to a statute that supports it. Making: Accounting quantified in monetary terms the operations conducted by an entity other participants in economic activity and certain economic events afectan.Las that economic transactions and accounting events quantified, are considered by it made: – When you have made transactions with other entities económicos. “When there have been internal changes that alter the structure of resources or their Sources.Unless” When economic events have occurred outside the body or derived from the operations thereof and whose effect can be reasonably quantified in monetary terms. / SA: is the trading company whose owners are under a participation in social capital through bonds or actions . The actions can be distinguished from each other by their different nominal value or different privileges linked to them, such as the perception of a minimum dividend. The shareholders do not respond with their personal assets of the partnership debts, but only up to the maximum amount of capital.