Who are the users of accounting?

The users of accounting can be divided into two main

categories: internal users and external users.

Internal users are individuals or groups within an

organization who use accounting information for
decision-making and managerial purposes. Examples
of internal users include management, employees,
shareholders, and the board of directors.

External users are individuals or groups outside the

organization who rely on accounting information for
various purposes. Examples of external users include
investors, creditors, customers, suppliers, tax
authorities, regulatory agencies, and the general
public.

Accounting assumptions:
Accounting assumptions are the basic principles that
guide the recording and reporting of financial
transactions.
going concern assumption.
The going concern assumption is an accounting
principle that assumes that a business will
continue to operate in the foreseeable future and
will not be forced to cease operations or
liquidate its assets in the near term. This
assumption is important for financial statement
preparation as it allows for the use of historical
cost accounting, which assumes that assets will
be used in the business for their expected useful
lives and not immediately sold off. It also
assumes that the company will be able to pay its
debts as they come due, and that any future
losses will not impair its ability to operate.

time period assumption.

The time period assumption is an accounting
principle that assumes that an organization's
activities can be divided into specific periods of
time, such as months, quarters, or years. This
assumption provides a framework for the
preparation of financial statements, as it enables
the business to measure its performance and
financial position over a specific period of time.

monetary unit assumption.

The monetary unit assumption is an accounting
principle that assumes that financial transactions
are recorded and reported in a single monetary
unit, usually the local currency. This assumption
implies that the effects of inflation and currency
fluctuations are not considered in financial
statements, as they are measured and presented
in nominal terms. For example, if a company
buys a machine for $10,000 and the value of the
currency decreases by 20%, the machine will still
be recorded at $10,000 in the financial
statements, even though its purchasing power
has decreased. The monetary unit assumption is
necessary for accounting to provide a common
basis for measuring and comparing financial
transactions, and it simplifies the preparation of
financial statements by avoiding the need for
constant revaluation of assets and liabilities.

business entity assumption.

The business entity assumption is an accounting
principle that assumes that a business is separate
and distinct from its owners or other businesses.
This means that a business is treated as a
separate economic entity from its owners,
shareholders, or other businesses. The
assumption helps to ensure that the financial
transactions of the business are recorded
separately from those of the owners or other
businesses, and that the financial statements of
the business reflect only the financial activities of
the business itself. This principle is important in
accounting because it helps to provide accurate
and reliable financial information to users of the
financial statements, such as investors, creditors,
and other stakeholders.
Sole proprietorship.
Sole proprietorship is a business structure where
a single person owns and manages the entire
business. The owner of a sole proprietorship has
complete control over the business and is solely
responsible for all profits, debts, and losses. The
business and the owner are considered as a single
entity for legal and tax purposes. Sole
proprietorships are typically small businesses
such as freelance work, consultancy, or small
retail businesses.

Partnership.
Partnership is a type of business entity in which
two or more individuals own and operate the
business together. In a partnership, the partners
share the profits, losses, and responsibilities of
the business. There are several types of
partnerships, including general partnerships,
limited partnerships, and limited liability
partnerships. In a general partnership, all
partners have unlimited liability for the debts
and obligations of the business, while in a limited
partnership, there are both general partners who
have unlimited liability and limited partners who
have limited liability. In a limited liability
partnership, all partners have limited liability for
the debts and obligations of the business.

Corporation.
A corporation is a legal entity that is separate
from its owners, also known as shareholders. It is
created by filing articles of incorporation with
the state in which it will be registered. The
owners of a corporation have limited liability,
which means that their personal assets are
protected from the company's debts and
liabilities. Shareholders elect a board of directors,
who are responsible for making major decisions
about the corporation's direction and policies.
Corporations may issue stock, which allows
shareholders to buy and sell ownership shares in
the company.

What is accounting equation?

The accounting equation is a fundamental
concept in accounting that represents the
relationship between a company's assets,
liabilities, and equity. The equation is as follows:
Assets = Liabilities + Equity
In other words, a company's total assets must be
equal to the sum of its liabilities and equity. This
equation is also known as the balance sheet
equation because it forms the basis for the
balance sheet, which is a financial statement that
reports a company's assets, liabilities, and equity
at a specific point in time.

Asset accounts In debit means.

In an asset account, a debit entry represents an
increase in the value of the asset or an increase in
the amount of the asset. For example, if a
company purchases a new computer for $1,000
and records the transaction in its asset account, it
would show as a debit entry because the value of
the asset has increased. Similarly, if a company
receives cash of $500 from a customer and
records the transaction in its asset account, it
would show as a debit entry because the amount
of the asset has increased.

Asset accounts In credit means.

In credit, an increase in the asset account is
recorded. This means that the business has
received or acquired more assets, such as cash,
inventory, equipment, or property, which will be
recorded as a credit in the asset account.

Liability accounts In debit means.

Liability accounts are typically credited when
they increase and debited when they decrease.
However, in certain transactions, liability
accounts may be debited. For example, when a
payment is made on a liability, the liability
account will be debited to decrease the balance.

Liability accounts In credit means.

When a transaction increases a liability account,
it is recorded as a credit entry. Therefore, in
credit means that there is an increase in the
liability account balance due to a credit
transaction.

equity accounts In debit means.

Equity accounts in debit means a decrease in
equity. It could be due to a decrease in owner's
investment in the business, a decrease in retained
earnings, or a decrease in other equity accounts
such as treasury stock or accumulated other
comprehensive income.
equity accountsIn credit means.
When an entry is made to the equity account in
the credit column, it means that there is an
increase in equity. This can happen when a
company earns profit, issues new shares, or
receives capital investment from its owners. An
increase in equity generally indicates that the
company's financial position has improved.

Cash basis vs accured basis.

Cash basis and accrual basis are two methods of
accounting used to record transactions in a
business.
Cash basis accounting records transactions when
cash is received or paid out. Under this method,
revenue is recognized only when it is received,
and expenses are recognized only when they are
paid. This method is simpler than accrual
accounting and is generally used by small
businesses.
Accrual basis accounting records transactions
when they occur, regardless of when cash is
exchanged. Under this method, revenue is
recognized when it is earned, even if the
payment is not received yet, and expenses are
recognized when they are incurred, even if the
payment is not made yet. This method provides a
more accurate representation of a company's
financial position and is required for larger
businesses.

Adjusting entries.
Adjusting entries are journal entries made at the
end of an accounting period to update accounts
and ensure that financial statements are accurate
and up to date. These entries are necessary
because some transactions may have been
omitted or recorded inaccurately during the
accounting period.
There are two types of adjusting entries: accruals
and deferrals.
Accruals involve recording revenue or expenses
that have been earned or incurred but have not
yet been recorded in the accounts. For example,
if a company provides services in December but
does not receive payment until January, an
adjusting entry would be made in December to
record the revenue earned.
Deferrals involve recording the receipt or
payment of cash that relates to a future
accounting period. For example, if a company
pays rent for the next six months in advance, an
adjusting entry would be made to recognize the
portion of the rent expense that relates to the
current accounting period.
Other examples of adjusting entries include:
Depreciation: adjusting the value of fixed assets
to account for wear and tear over time.
Accrued interest: recognizing interest income or
expense that has been earned or incurred but not
yet received or paid.
Bad debts: adjusting the allowance for doubtful
accounts to account for uncollectible accounts
receivable.
Prepaid expenses: recognizing expenses that
have been paid in advance but not yet used or
consumed.

Prepaid expense.
A prepaid expense is an expense that is paid in
advance but has not yet been incurred or used
up. It is an asset on the balance sheet until it is
used up, at which point it becomes an expense
on the income statement. Common examples of
prepaid expenses include prepaid rent, prepaid
insurance, and prepaid supplies. When an
adjusting entry is made for a prepaid expense,
the amount of the prepaid asset is reduced and
the amount of the expense is increased on the
income statement.
Unearned revenue.
Unearned revenue is a liability account in
accounting that represents income received by a
company for services or goods that have not yet
been provided or delivered to the customer. It is
also known as deferred revenue, advance
payment, or customer deposits.
For example, a company that receives payment in
advance for a subscription service that will be
provided over a 12-month period will record the
payment as unearned revenue. As the company
delivers the service over the 12 months, it will
recognize the revenue gradually and reduce the
unearned revenue liability. This is done through
adjusting entries to reflect the earned revenue
and reduce the unearned revenue account on the
balance sheet.

Accured revenue.
Accrued revenue refers to revenue earned but
not yet received or recorded in the accounting
records. It is also known as accrued income or
unbilled revenue. This type of revenue is typically
generated by providing services or delivering
goods to a customer, but the payment is delayed
until a later date.
Examples of accrued revenue include:
Interest income earned but not yet received or
recorded
Rent income earned but not yet received or
recorded
Service fees earned but not yet received or
recorded
Commission income earned but not yet received
or recorded
To record accrued revenue, an adjusting entry is
made at the end of the accounting period to
recognize the revenue earned but not yet
received or recorded. This entry involves debiting
an accrued revenue account and crediting a
revenue account. When the payment is received
at a later date, the accrued revenue account is
credited, and the cash account is debited to
reflect the receipt of the payment.

Accured expense.
Accrued expenses refer to expenses that have
been incurred but not yet recorded in the
accounting system, meaning that they have not
yet been paid for or recognized as a liability. This
typically happens when a company has received
goods or services, but the invoice or bill has not
yet been received or processed. Examples of
accrued expenses include salaries, rent, interest,
and utilities that have been incurred but not yet
paid.
To record accrued expenses, an adjusting entry is
made at the end of the accounting period to
recognize the expense and create a liability on
the balance sheet. The journal entry debits the
expense account and credits the corresponding
accrued liability account. When the payment for
 the expense is made, the accrued liability account
is credited, and the cash or bank account is
debited.

What is accounting cycle?

The accounting cycle is a series of steps that a
company follows to record, classify, and
summarize its financial transactions. It typically
includes the following steps:

1. Analysis of transactions: In this step, all financial

transactions that have occurred during a given
period are analyzed and recorded.
2. Journal entries: After analyzing the transactions,
they are recorded in the journal entries with
debit and credit accounts.
3. Posting to the ledger: Once the journal entries
are recorded, they are posted to the general
ledger accounts, which help in maintaining the
records for each account.
4. Trial balance: A trial balance is prepared to verify
the equality of debits and credits in the ledger
accounts.
5. Adjusting entries: At the end of the accounting
period, adjusting entries are made to reflect the
accruals and deferrals that have occurred during
the period.
6. Adjusted trial balance: After making adjusting
entries, an adjusted trial balance is prepared to
verify that the total debits equal the total credits
in each account.
7. Financial statements: The financial statements are
prepared based on the adjusted trial balance,
which includes an income statement, balance
sheet, and cash flow statement.
8. Closing entries: Once the financial statements are
prepared, closing entries are made to transfer the
balances of revenue and expense accounts to the
retained earnings account.
9. Post-closing trial balance: Finally, a post-closing
trial balance is prepared to verify that all
temporary accounts have been closed and that
the total debits equal the total credits in the
permanent accounts.

Overall, the accounting cycle ensures that a

company's financial transactions are accurately
recorded, summarized, and reported in
accordance with generally accepted accounting
principles (GAAP).

Temporary and permanent accounts

Closing entries.
Temporary and permanent accounts are the two
types of accounts in accounting. Temporary
accounts are those accounts that are used to
record revenues, expenses, and withdrawals or
dividends. On the other hand, permanent
accounts are accounts that are used to record
assets, liabilities, and equity.

Closing entries, also known as closing the books,

is the process of resetting the temporary
accounts to zero and transferring their balances
to the permanent accounts at the end of an
accounting period. This process is necessary to
prepare the accounts for the next period and to
calculate the company's net income or loss for
the current period.
 The closing entries involve the following steps:

1. Close revenue accounts: The balance of the

revenue accounts is transferred to the income
summary account.
2. Close expense accounts: The balance of the
expense accounts is transferred to the income
summary account.
3. Close income summary account: The balance of
the income summary account is transferred to
the retained earnings account if there is a net
income. If there is a net loss, it is transferred to
the retained earnings account with a debit.
4. Close dividends account: The balance of the
dividends account is transferred to the retained
earnings account.

After the closing entries are completed, the

temporary accounts will have zero balances, and
the permanent accounts will reflect the
company's financial position.