Accounting

Definition

Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business. * It is widely known as the "Language of Business" because it communicates the financial health of an organization to interested parties.

Purpose

The main goal is to provide transparency and actionable information for different users: 1. Investors & Creditors: To assess risk and potential return (Financial Accounting). 2. Management: To make internal decisions like pricing and budgeting (Managerial Accounting). 3. Government (IRS): To ensure compliance and collect taxes (Tax Accounting).

The Golden Rule: Double-Entry

Modern accounting is based on Double-Entry Bookkeeping. * Every transaction affects at least two accounts. * The Equation: $$Assets = Liabilities + Equity$$ * For every entry on the Debit side (Left), there must be a corresponding entry on the Credit side (Right). This ensures the books are always balanced.

Key Deliverables (Financial Statements)

These are the scorecards of a business: 1. Balance Sheet: A snapshot of what the company owns and owes at a single point in time. 2. Income Statement (P&L): A video recording of profitability over a period (Revenue vs. Expenses). 3. Cash Flow Statement: Tracks the actual movement of cash in and out. Crucial for understanding solvency.