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Financial Statements
Financial statements report on the financial performance and condition of an organization. There are four major financial statements Income Statement Balance Sheet Statement of Owner’s Equity Statement of Cash Flows

The system for recording debits and credits follows from the accounting equation: Assets = Liabilities + Owner’s Equity
Equity
Owner’s capital- Owner’s withdrawals+ RevenuesExpenses
Business Profit
Revenues: Amounts earned from selling products or services -Expenses: Costs incurred with revenues =Profit: Amounts earned from revenues less expenses incurred Loss occurs when expenses are more than revenues

The T-Account
The T-account is used as a simple tool for illustrating the balance in a given account . Account Title

(Left Side) Debit
(Right Side) Credit
Focus of Accounting
Identifying Economic Events Recording Economic Events Reporting and Analyzing Economic Events
Accounting and Technology



Reduces time, effort and cost of record-keeping Improves clerical accuracy Changes the way we store, process and summarize large masses of data
Normal Balances
The normal balance of each account refers to the debit or credit side where increases are recorded Assets= Liabilities + Owner’s Equity Debit Credit Debit Credit Debit Credit + + + Normal Normal Normal

Debits and Credits
Within every individual account, debits and credits have opposite effects.
Therefore, in an account where a debit is an increase, a credit is a decrease and vice versa.
Double-Entry Accounting
Double-entry accounting means every transaction affects and is recorded in at least two accounts. The total amount debited must equal the total amount credited for each transaction.
Accounting Equation

The accounting equation must remain in balance after each transaction.
Assets=Liabilities + Equity

The Account
The account is a detailed record of increases and decreases in specific assets, liabilities and equities. Asset Accounts Assets are resources controlled by an organization that have current and future benefits. cash, accounts receivable, notes receivable, office supplies, store supplies, prepaid insurance, equipment, buildings, land
ቤተ መጻሕፍቲ ባይዱ
A balance sheet reports on an organization’s financial position at a point in time The income statement , statement of owner’s equity and statement of cash flows report on performance over a period of time

Liabilities Accounts Liabilities are obligation to transfer assets or provide services to other entities. accounts payable, notes payable, unearned revenues, other liabilities Equity Accounts owner’s capital, owner’s withdrawal, revenues, expenses

Income Statement
Statement of Owner’s Equity
Balance Sheet
Fundamental Principles of Accounting Generally Accepted Accounting Principles (GAAP) 1.Business Entity Principle A business is accounted for separately from its owner or owners. 2. Objectivity Principle Financial statement information is supported by independent, unbiased evidence.
MODULE 1 UNDERSTANDING FINANCIAL STATEMENTS
Accounting Review
Power of Accounting
Accounting is a system that Identifies, Measures，Records, Communicates information that is Relevant, Reliable, Consistent, Comparable to help users make better decisions
Balance of an Account
An account balance is the difference between the increases and decreases in an account Total increases – Total decreases =Balance




Managerial accounting is the area of accounting aimed at serving the decisionmaking needs of internal users. It provides special purpose reports customize to meet the information needs of internal users. general accounting, cost accounting, budgeting,internal auditing, management consulting
Forms of Organization
Business :Sole Proprietorship , Partnership Corporation Non-business
Users of Accounting Information
Internal Users Managers ,Officers ,Internal Auditors Sales Managers ,Budget Officers Controller External Users Lenders ,Shareholders ,Government , Labour Unions ,External Auditors , Customers

Managerial General Accounting Cost Accounting Budgeting Internal Auditing Management -consulting services