FINANCIAL ACCOUNTING ACCOUNTI NG = REPORTI NG SYSTEM A C C O U N T I N G I S A S Y S T E M AT I C P R O C E S S T H AT C O M M U N I C AT E S T H E I N F O R M AT I O N , G E N E R AT E D BY PROCESSING THE REQUIRED INPUT(EVENTS & TRANSACTIONS), TO THE USERS OF THE SAME SO T H AT T H E Y C A N T A K E I N F O R M E D J U D G E M E N T USERS OF ACCOUNTING INFORMATION EXTERNAL USERS PROSPECTIVE INVESTORS LENDERS GOVERNMENT ANALYSTS INTERNAL USERS MANAGEMENT EMPLOYEE USERS TAKEN TOGETHER ARE KNOWN AS STAKEHOLDERS ACCOUNTING FINANCIAL EXTERNAL REPORTING COST MANAGEMENT INTERNAL REPORTING ANY SYSTEM HAS THREE PHASES INPUT PROCESSING OUTPUT JOURNAL INPUT EVENTS & TRANSACTION PROCESSING OUTPUT INFORMATION LEDGER QUALITY OF INFORMATION INFORMATION GENERATED BY ACCOUNTING MUST HAVE THE FOLLOWING CHARACTERISTICS : RELIABILITY DEPENDABILITY RELEVANCE COMPARABILITY UNDERSTANDABILITY ACCOUNTING PRINCIPLES & CONCEPTS GAAP = GENERALLY ACCEPTED ACCOUNTING PRINCIPLES GAAP ARE PRINCIPLES, RULES, STANDARD,CONCEPTS AND CONVENTIONS FOLLOWED UNIFORMLY BY THE ACCOUNTANT IN THE PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS. SO GAAP ARE THE BACKBONE OF THE WHOLE SYSTEM OF ACCOUNTING ACCOUNTING CONCEPTS AND ASSUMPTIONS: FUNDAMENTAL ACCOUNTING ASSUMPTIONS ARE GOING CONCERN ACCRUAL OTHER ACCOUNTING CONCEPTS MONEY MEASUREMENT CONCEPT ACCOUNTING PERIOD CONCEPT ENTITY CONCEPT DUAL ASPECT CONCEPT COST CONCEPT ACCOUNTING CYCLE ECONOMIC EVENTS & TRANSACTIONS JOURNAL SPECIAL CASH BOOK PETTY CASH BOOK GENERAL PURCHASE DAY BOOK SALES DAY BOOK PURCHASE RETURN BOOK SALES RETURN BOOK BR BOOK BP BOOK SIX ENTRIES ARE MADE i) OPENING ii) CLOSING iii) ADJUSTMENT iv) RECTIFICATION v) TRANSFER vi) RESIDUARY LEDGER GENERAL DEBTORS CREDITORS TRIAL BALANCE FINAL ACCOUNTS THE REPEATATIVE PROCESS OF JOURNAL TO LEDGER TO TRIAL BALANCE AND PREPARATION OF FINAL ACCOUNTS EVERY YEAR ARE KNOWN AS ACCOUNTING CYCLE. DOUBLE ENTRY PRINCIPLES SCIENTIFIC BASIS OF ACCOUNTING. IT STATES THAT EVERY TRANSACTION HAS TWOFOLD ASPECTSONE RECEVERCALLED DR OTHER GIVER CALLED CR RULES OF JOURNAL GOLDEN RULE PERSONAL ACCOUNT – DR - RECEIVERS CR - GIVER REAL ACCOUNT - DR WHAT COMES IN CR WHAT GOES OUT NOMINAL ACCOUNT - DR EXPENSES & LOSSES CR INCOME & GAINS ACCOUNT- AN ACCOUNT IS A PLACE IN THE LEDGER WHERE SIMILAR TRANSACTIONS ARE RECORDED MODERN RULE ASSETS, EXPENSES, LOSSES – DR INCREASE CR DECREASE LIABILITIES, INCOME, GAINS - DR DECRASE CR INCREASE TERMINOLOGY ASSETS- RESOURCES UNDER THE CONTROL OF AN ENTERPRISE AS A RESULT OF PAST TRANSACTION BENEFIT OF WHICH WILL FLOW INTO THE ENTERPRISE IN FUTURE. LIABILITIES-PRESENT OBLIGATION AS A RESULT OF PAST TRANSACTION THAT WILL BE MATURED IN FUTURE. EXPENSES – OUTFLOW OF RESOURCES OTHER THAN DRAWINGS THAT WILL RESULT IN DECREASE IN EQUITY. INCOME – INFLOW OF RESOURCES OTHER THAN CAPITAL INTRODUCTION THAT WILL RESULT IN INCREASE IN EQUITY.