Accounting System Overview:

FINANCIAL ACCOUNTING: financial accounting is a financial information system that tracks and records an organization’s business transactions and aggregates them into reports for decision makers both inside and outside the business.

Note: transaction is an event that has consequences for business’ financial conditions.

Introduction of Concepts (1-5):

1 ENTITY: The entity concept is the most basic accounting concept. It states that accounts are kept for an entity as distinct from the people who own, run or do business with the entity.

2 MONEY MEASUREMENT: The money measurement concept states that financial accounting deals only with things that can be represented in monetary terms.

3 GOING CONCERN: Going concern is accounting's way of saying that an entity is expected to remain in operation for the indefinite future.

4 CONSISTENCY: The consistency concept states that an entity should use the same accounting methods and procedures from period to period unless it has a sound reason to change methods.

Note: the consistency concept does not forbid a switch in accounting procedures.

Note: in context of accounting concepts, consistency means consistency over time.

5 MATERIALITY: The materiality concept states that an entity need only apply proper accounting to items that are material, i.e., significant to potential users of the financial statements. This concept allows the accountant to be practical in choosing the appropriate degree of precision in the accounts.

Quality Attributes: Relevance vs. Reliability

Relevance refers to the timeliness and usefulness of the information to its users. Reliability refers to the objectivity and verifiability of the information. Reliability is generally given precedence over relevance.

Accrual Accounting:

Accrual accounting attempts to record the