ACCOUNTING TUTORIALS
Part I Financial Statements and Basic Accounting Principles
Basic Definitions
Accounting is the process of measuring economic information and communicating it to the decision-makers and stakeholders in an organization. Accounting information is used by an organizations managers, investors, employees, and creditors. Government bureaus like the IRS and the Securities and Exchange Commission (SEC) also use accounting information.
Accounting is generally divided into two main varieties: financial accounting and managerial accounting:
The purpose of financial accounting is to create financial statements for an entity.
Managerial accounting involves the measurement of financial information that helps an entity make better decisions about its operations.
Bookkeeping is a part of the financial accounting process. Bookkeeping is a set of procedures that captures and accumulate the results of economic activities.
Financial statements are generated during the financial accounting process. Financial statements begin with transactions and accounts:
Transactions are economic interchanges. A transaction occurs, for example, when the company purchases office supplies from an outside vendor, or sells one of its products to a customer.
Accounts are categories used to organize transactions. Examples of accounts include: cash, paid-in capital, and merchandise inventory.