📘 Chapter 1 — Introduction to Accounting & Financial Accounting

What is Accounting

• Definition: Accounting is the process of identifying, measuring, recording and communicating financial information about an entity to help stakeholders make informed decisions. 

• Purpose: Provide useful financial information to both internal users (e.g. management) and external users (e.g. investors, creditors, regulators) 

Types / Branches of Accounting

• Financial accounting — concerned with reporting financial information to external users. 

• Management (or managerial) accounting — information for internal users (management, operations).

Users of Accounting Information

• External users: investors, creditors, regulators, tax authorities, public. 

• Internal users: business owners, managers, employees. 

Fundamental Concepts & Principles

Accounting relies on certain assumptions, principles and conventions (commonly under GAAP or similar standards). Typical principles/concepts include:

• Business (economic entity) concept — business separated from owners 

• Going concern (business will continue to operate) 

• Historical cost (record assets/liabilities at cost when purchased) 

• Periodicity (reporting at regular intervals) 

• Monetary unit concept (use stable currency for records) 

• Accrual basis / matching principle — revenues and related expenses recognized in the same period. 

Basic Financial Statements — what they show

Financial accounting culminates in a set of financial statements, which typically include: 

• Balance Sheet (Statement of Financial Position) — snapshot of assets, liabilities, and equity at a point in time 

• Income Statement (Profit & Loss / Statement of Comprehensive Income) — shows revenues, expenses, and profit or loss over a period 

• Statement of Changes in Equity — shows changes in owners’ equity over the period (e.g. capital contributions, retained earnings) 

• Cash Flow Statement — shows cash inflows and outflows from operating, investing, financing activities (in some curricula) 

The Fundamental Accounting Equation

• Equation: Assets = Liabilities + Owner’s (or Shareholders’) Equity. 

• This equation ensures that the company’s resources (assets) are always matched by claims against those resources (liabilities and equity). 

📘 Chapter 2 — The Recording Process, Accounting Concepts & The Accounting Equation

Elements of Financial Statements

• Assets — resources owned or controlled by the business that are expected to bring future economic benefits. 

• Liabilities — present obligations the business owes to other parties (creditors), expected to be settled in the future. 

• Owner’s (or Shareholders’) Equity / Capital — residual interest in the assets after deducting liabilities; capital invested by owners plus retained earnings.

The Basic Accounting Equation / Double-Entry System

• As above: Assets = Liabilities + Equity. 

• Double-entry bookkeeping: every transaction affects at least two accounts, ensuring debits equal credits, so the equation stays balanced. 

Accounting Concepts / Assumptions

Beyond the ones mentioned earlier: Use of accrual basis (recognizing revenues/expenses when incurred, not necessarily when cash flows), consistency, materiality, prudence, monetary unit, periodicity, etc. 

From Transactions to Financial Records

• When a business transaction occurs, it affects the accounting equation (e.g. purchase of equipment increases assets and reduces cash or increases liability). 

• Each transaction is recorded via journal entries (debits and credits), then posted to ledger accounts (T-accounts) for summarizing balances. 

📘 Chapter 3 — Recording & Classifying Transactions; Trial Balance Preparation

Depending on textbook/curriculum structure, Chapter 3 often focuses on the accounting cycle’s early mechanical steps — journalizing, posting, trial balance, etc. 

Recording Transactions

• Use source documents (invoices, receipts, bank statements, etc.) to record business transactions. 

• Transactions are first entered in journals (general journal or special journals), then posted to the general ledger. 

Ledger & Chart of Accounts

• The general ledger is where all accounts (assets, liabilities, equity, revenues, expenses) are maintained with running balances. 

• A chart of accounts organizes how different types of accounts are labeled, helping classification and consistency.

Trial Balance

• After posting all entries, a trial balance is prepared: a list of all ledger accounts and their balances. Debit totals must equal credit totals. 

• A trial balance tests the mathematical equality, but doesn’t guarantee there are no errors (e.g. a transaction recorded twice, or in wrong accounts). 

📘 Chapter 4 — Adjustment Process; Preparing Adjusted Trial Balance & Financial Statements

As businesses operate over time, some revenues and expenses must be adjusted to reflect the correct period — this is where adjusting entries come in. 

Why Adjustments Are Needed

• Some expenses/revenues may not yet be recorded by period end (e.g. accrued expenses/revenues).

• Some prepayments or deferred items — like prepaid rent, unearned revenue — need proper recognition.

• Depreciation or amortization of non-current (long-term) assets must be recorded to allocate cost over useful life. 

Common Types of Adjusting Entries

• Prepaid expenses → expense recognition (as they are used up) 

• Accrued expenses → record liabilities and related expense even if cash not yet paid 

• Unearned revenues → recognize revenue when earned, not when cash received 

• Depreciation / amortization of long-term assets.

Adjusted Trial Balance & Preparing Financial Statements

• After posting adjusting entries, prepare an adjusted trial balance to ensure debits still equal credits. 

• Use the adjusted balances to prepare financial statements: income statement, balance sheet (statement of financial position), and statement of changes in equity (if applicable) 

• Classification of assets & liabilities into current vs non-current may be done (depending on ledger balances and business structure)

📘 Chapter 5 — Completing the Accounting Cycle (Closing Entries, Post-Closing Trial Balance)

After financial statements are prepared, temporary accounts (revenues, expenses, drawings/dividends) must be closed so that the next accounting period starts clean.

Closing Entries

• Temporary accounts (revenues, expenses, drawings/dividends) are closed (zeroed out) by transferring their balances to a permanent equity account (e.g. retained earnings or owner’s capital). 

• This ensures the next accounting period starts with zero balances in temporary accounts. 

Post-Closing Trial Balance

• After posting closing entries, prepare a post-closing trial balance. It should list only permanent accounts (assets, liabilities, equity). 

• This serves as proof that ledger is still balanced and ready for next period. 

Liquidity Measures (sometimes included)

• Using balances from adjusted trial balance and post-closing data, one can compute basic liquidity measures — e.g., working capital (current assets − current liabilities), current ratio, to assess short-term financial health. 

✏️ Additional Notes — Typical Variations by Curriculum / Course

• Some courses combine or split topics differently: e.g. what is in Chapter 3 for one book may appear in Chapter 2 or 4 in another.

• Some curricula include bank reconciliation, control accounts, cash book / petty cash book, etc., early (after basic recording) — but that may come after Chapter 5 in your course. .

• Depreciation, prepayments, accruals — though discussed in Chapter 4 here — may be spread out across chapters depending on course design.