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Financial Accounting Lecture Notes

Financial accounting involves recording, summarizing, and reporting business transactions through financial statements for external users. Key principles include accrual, consistency, going concern, matching, and conservatism, while the accounting equation (Assets = Liabilities + Owner’s Equity) is fundamental. Financial statements include the balance sheet, income statement, and cash flow statement, with examples of journal entries illustrating basic transactions.

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206 views2 pages

Financial Accounting Lecture Notes

Financial accounting involves recording, summarizing, and reporting business transactions through financial statements for external users. Key principles include accrual, consistency, going concern, matching, and conservatism, while the accounting equation (Assets = Liabilities + Owner’s Equity) is fundamental. Financial statements include the balance sheet, income statement, and cash flow statement, with examples of journal entries illustrating basic transactions.

Uploaded by

Hershey Mae R. Renonos
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We take content rights seriously. If you suspect this is your content, claim it here.
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Lecture Notes: Introduction to Financial Accounting

1. What is Financial Accounting?


Financial accounting is the process of recording, summarizing, and reporting a company's
business transactions
through financial statements. These statements are used by external users such as
investors, creditors, and regulators.

2. Basic Accounting Principles


- **Accrual Principle**: Revenues and expenses are recorded when they are earned or
incurred, not when cash is exchanged.
- **Consistency Principle**: Accounting methods should be applied consistently from period
to period.
- **Going Concern Principle**: Assumes that the business will continue to operate
indefinitely.
- **Matching Principle**: Expenses should be matched with the revenues they help to
generate.
- **Conservatism Principle**: When in doubt, choose the solution that results in lower
profits.

3. The Accounting Equation


The fundamental equation of accounting is:

Assets = Liabilities + Owner’s Equity

This equation must always be in balance and is the foundation of the double-entry
accounting system.

4. Financial Statements Overview


- **Balance Sheet**: Shows a company’s financial position at a specific point in time.
- **Income Statement**: Reports revenues and expenses over a period of time.
- **Cash Flow Statement**: Shows cash inflows and outflows from operating, investing, and
financing activities.

5. Example Transactions and Journal Entries


Example: A company buys office supplies worth $500 in cash.

Journal Entry:
Dr. Office Supplies $500
Cr. Cash $500

Example: The company receives $1,000 from a client for services rendered.
Journal Entry:
Dr. Cash $1,000
Cr. Service Revenue $1,000

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