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Accounting is the process of recording, classifying, and summarizing financial transactions in order to provide information that is useful for making business decisions. It involves the preparation of financial statements, such as the balance sheet, income statement, and statement of cash flows, that provide information about a company's financial performance and position.
The three main types of financial statements are the balance sheet, income statement, and statement of cash flows. The balance sheet provides information about a company's assets, liabilities, and equity at a particular point in time. The income statement shows a company's revenues, expenses, and net income for a specific period of time. The statement of cash flows shows the sources and uses of cash for a specific period of time.
The main difference between cash and accrual basis accounting is the timing of when transactions are recorded. In cash basis accounting, transactions are recorded when cash is exchanged. In accrual basis accounting, transactions are recorded when they occur, regardless of when the cash is exchanged.
The double-entry accounting system is a method of accounting in which each financial transaction is recorded in at least two different accounts. This system ensures the accuracy and completeness of financial records, and helps to prevent errors and fraud. In the double-entry system, each transaction is recorded as a debit in one account and a credit in another account.
The main accounting principles are the principles of financial reporting that guide accountants in the preparation of financial statements. These principles include the principle of going concern, the principle of accrual, the principle of consistency, the principle of prudence, and the principle of faithful representation.
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