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01 Accounting Basics - Class Notes With Examples

The document provides foundational notes on accounting, covering key terms such as assets, liabilities, equity, revenue, and expenses. It explains the accounting equation, double-entry bookkeeping, and outlines the three main financial statements: balance sheet, income statement, and cash flow statement. Additionally, it highlights basic accounting principles like the accrual principle and consistency.

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60 views2 pages

01 Accounting Basics - Class Notes With Examples

The document provides foundational notes on accounting, covering key terms such as assets, liabilities, equity, revenue, and expenses. It explains the accounting equation, double-entry bookkeeping, and outlines the three main financial statements: balance sheet, income statement, and cash flow statement. Additionally, it highlights basic accounting principles like the accrual principle and consistency.

Uploaded by

Saba Fatima
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Accounting Basics – Class Notes with

Examples
Accounting is the systematic process of recording, reporting, and analyzing financial
transactions. These class notes cover foundational topics in financial accounting, suitable
for college-level business students.

1. Key Accounting Terms

- Assets: Resources controlled by a business (e.g., Cash, Equipment)


- Liabilities: Obligations the company owes (e.g., Loans, Accounts Payable)
- Equity: Owner’s residual interest in the assets
- Revenue: Income earned from business activities
- Expenses: Costs incurred to generate revenue

2. The Accounting Equation


Assets = Liabilities + Owner’s Equity

This fundamental equation ensures the balance of the financial system. Every transaction
affects at least two accounts to maintain this equation.

3. Double-Entry Bookkeeping

Each transaction has a dual effect:


- Debit: Left side of an account
- Credit: Right side of an account

Example:
If a business purchases inventory for $1,000 cash:
- Debit Inventory $1,000
- Credit Cash $1,000
4. Financial Statements Overview

1. Balance Sheet: Shows assets, liabilities, and equity at a specific point in time.
2. Income Statement: Summarizes revenue and expenses over a period.
3. Cash Flow Statement: Tracks the flow of cash in operating, investing, and financing
activities.

5. Example: Journal Entry

Transaction: ABC Company pays $500 for office supplies in cash.

Journal Entry:
Debit Supplies $500
Credit Cash $500

6. Basic Accounting Principles

- Accrual Principle: Revenues and expenses are recorded when incurred, not when cash is
exchanged.
- Consistency: Use the same accounting methods period after period.
- Going Concern: Assumes the business will operate indefinitely.

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