Financial accounting is the process of recording, summarizing and reporting the myriad of transactions from a business, so as to provide an accurate picture of its financial position and performance.

Internal Users of Accounting Information

Every internal employee of the enterprise uses accounting information. From basic labor categories to the chief executive officer, all employees are paid, and their paychecks are generated by the accounting information system. However, the amount of use and, in particular, the involvement in the design of accounting information systems, vary considerably. Examples of internal users of accounting information systems are … Read more

External Users of Accounting Information

External users of accounting information are individuals and other enterprises that have a financial interest in the reporting enterprise, but they are not involved in the day-to-day operations of that enterprise. External users of financial information include … Read more

Essential Concepts of Financial Accounting

Accounting Cycle

An accounting cycle is a systematic process of recording, classifying and summarizing business activities / transactions, so that the accounting information can be transformed into a more readable / understandable format for internal as well as external users of accounting information. That format is simply called a financial statement. In this article I will try to elaborate this process step by step using images and … Read more

Current Assets

Long-term Liabilities

  • Callable Bonds Callable bonds are those bonds whereby the company has the right to buy back the bonds before maturity at a set or “call” price. In other words, callable bonds allow the issuing company to buy back the bonds before the stated maturity date. The issuer might want to do this to take advantage of lower market interest rates, which would allow for the issuance of new bonds to match those lower rates. In other words, … Read more

Current Liabilities

Liabilities represent a part of an organization’s balance sheet. Balance sheet of an organization is based on accounting equation. Read more

  • Accrued Expenses or accrued charges are current period expenses but not paid until the current period is expired. Accrued expenses are recognized in the current period as expenses but will be paid on a later date… Read more
  • Accounts Payable – Sometimes an organization may receive goods or get services from a supplier or vendor in advance and will pay the supplier or vendor on a future date. In this case we can say that the organization is buying goods or services on credit (on account). Sometimes the organization give a promissory note to the supplier or … Read more

Accounting Principles

Financial Ratios – Financial Ratio Analysis

The following is a guide to some common ratios used to measure the financial performance of a business. Different industries have different benchmarks for each ratio. It is important to understand the trends in a company’s performance from period-to-period and the relative performance of a company within its industry for each ratio… Read more

Treasury Stock

One way a corporation can reduce the number of shares it has outstanding is to buy them back on the stock market. The transaction involves a debit to treasury stock and a credit to cash for the market value of the shares… Read more

Inventory

Like accounts receivable, inventory involves the everyday operations of the company; and can also contain a huge portion of the company’s current assets. However, unlike accounts receivable, inventory isn’t just a monetary concept… Read more