Essential Accounting Concepts and Terminology Explained
Core Accounting Concepts
Accounting: A Control System
Accounting is an economic-financial information control system with a great capacity for synthesis reports, showing very low [detail/complexity - *The original sentence was incomplete, assuming context implies low complexity in the final report*].
Cost Accounting Focus
Cost accounting is primarily addressed to company managers or directors.
Supplier Account Charge
A charge on the account of a supplier means that the debt owed by the company to that supplier decreases.
The Ledger Function
The ledger displays transactions that affect each particular asset item, allowing observation of its amount at any time.
Accrual Basis Application
When applying accrual, it is stated: "We record on an accrual basis."
Grouping Plan Structure
Within a grouping plan, the structure of accounts can adhere to one of these conceptions:
- Numeric
- Alphanumeric
- Alphabetic
Financial Statements Components
Balance Sheet Definition
The Balance Sheet: A statement showing the economic and financial situation of the company.
Contingent Liabilities
Contingent Liabilities: These are not listed in the stock (inventory/assets) of the company, even if they affect its accounting.
Inventory System Model
A dualistic model for keeping the Stock Account attributable to a system is the Periodic Inventory system.
Annual Reporting Requirements
What employers must prepare at the end of the year, regardless of size and activity, includes:
- The report
- The balance sheet
- The profit and loss account
- The statement of changes in equity
Comparability Principle
The principle ensuring comparability of amounts entered in a company's financial statements across different periods is Uniformity.
Memory (Notes to Accounts)
The notes provide complete, comprehensive, and discussed information contained in the other annual accounts.
Real Balance Seat
The entry conducted to accommodate the accounting balance is called the Adjusting Entry (Real Balance Seat).
Non-Annual Account Document
The document that does not form part of the annual accounts is the General Journal.
Accounting Event Classification
The accounting event described as: "Company sells a lot in effect for a higher price than that cost" is classified as a Mixed accounting event.
Differential Account Example
A differential account example is Personnel Costs.
Claims Verification
False Claim Identification
The following statements are generally true:
- An expense is an asset consumed.
- A payment is an outflow of money.
- Income and expense accounts are recognized when incurred.
The false claim is: The closing entry affects pecuniary accounts (differential accounts).
Accounting Standards Body in Spain
The body that issues accounting standards in Spain is The ICAC (Instituto de Contabilidad y Auditoría de Cuentas).
Fundamental Accounting Formulas
Key formulas include:
- Assets = Liabilities + Equity
- Economic Structure = Financial Structure
- Investment = Sources of Funding
- Equity = Contribution of Owners + Results
- Net Assets - Liabilities = [Equity]
Key Definitions Summary
Bookkeeping
Bookkeeping: Set of procedures used to process accounting information.
Cost Accounting Audience
Cost accounting is addressed to managers and company directors.
Land Purchase Impact
In a company dedicated to the purchase-sale of electricity, the purchase of land on credit does not modify the amount of equity.
Contingent Liability Example
An example of a contingent liability could be the guarantee that a company provides to a third party.
Current Asset Example
For a company dedicated to the purchase/sale of cars, an item that may be considered a current asset is a car owned by the company for sale.