What is accounting?

Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users.

What is accounting equity?

Accounting equity refers to the book value of an organization which is the difference between the balance sheet liabilities and assets.equity is the equal to total assets minus total liabilities.

Equity = Assets – Liabilities

The basic accounting equation is:

The basic accounting equation

Asserts = Liability + Owner’s Equity

Expanded accounting equation

Asserts = Liability +Owner’s capital  – Owner’s Drawing + Revenue – Expenses

The relationship is the basic accounting equation. Assets must equal the sum of liabilities and owner’s equity. Liabilities appear before the owner’s equity in the basic accounting equation because they are paid fast if a business is liquidated. The accounting equation applies to all economic entities regardless of size, nature of business, or form of business organization.

Assets are resources of business owners. Liabilities are creditor-ship claims on total assets. Owners equity is the ownership claim on total assets. Owner’s equity is the ownership claim on total assets.

Assets

Assets are resources a business owners. The business uses its assets in crying out such activities as production and sales. The common characteristic possessed by all assets is the capacity to provide future services or benefits.

Liabilities

Liabilities are claims against assets that is, existing debts and obligations.  Businesses of all sizes borrow money and purchase merchandise on credit. These economic activities result in payable of various sorts.

Owner’s Equity

The ownership claim on the total asset is the owner’s equity.  it is equal to total assets minus total liabilities.

Accounting information systems

Accounting information system- a system that collects, records, stores, and processes data to produce information for decision-makers. It includes people, procedures and instructions, data software information technology infrastructure, and internal control and security measures.

There are six component of AIS
1. The people who use this system
2. The procedures and instructions used to collect, process, and store data
3. The data about the organization and its business activities
4. The software used to process the data
5. The information technology infrastructure, including the computers, peripheral devices, and network communications devices used in the AIS
6. The internal control and security measures that safeguard AIS data

Who uses accounting data?

The financial information that users need depends upon the kinds of decisions they make. There are two broad groups of users of financial information.
1. Internal uses and 2. External users

Internal users
Internal users of accounting information are managers who plan, organize, and run the business. These include marketing managers, production supervisors, finance directors, and company offices.

External users
External users are individuals and organizations outside a company who want financial information about the company. The two most common types of external users are invested and creditors.

General Accepted Accounting Principles (GAAP)

The accounting profession has developed standards that are generally accepted and universally participated. This common set of standards is called general Accepted Accounting Principles (GAAP). These standards indicate how to report economic events.