Everything About Accounting Principles

Accounting principles, as a standard framework, form the foundation of all financial and economic activities in organizations and businesses. These principles are a set of rules and concepts used for the accurate recording, classification, and reporting of financial information. In this article, we aim to answer an important question: What is accounting, and why is familiarity with it important?

First, we define accounting and explain how this science helps improve transparency and better management of financial resources. Then, we will discuss the accounting profession as a vital role in organizations. Next, we introduce a dictionary of accounting principles to familiarize you with key concepts such as matching costs and revenues, continuity of operations, and the cost principle. This article is a comprehensive guide to understanding everything about accounting and introduces you to the basic principles of this knowledge.

What is Accounting? A Deep Look into this Financial Science

Accounting is one of the fundamental principles of financial management in any organization, serving as an information system for recording, analyzing, and reporting financial transactions. Accounting definition in simple terms is the recording and classification of financial transactions to assess the financial and economic status of an organization. So, what is accounting? Accounting is a process that records a business’s financial information accurately and transparently and presents it in financial reports such as the balance sheet and income statement. This information helps managers and stakeholders make more informed decisions.

Everything about Accounting includes knowledge of accounting principles, recording and reporting methods, and types of financial reports updated in each period (monthly, quarterly, or annually). Accounting affects all parts of an organization, including financial resource management, cost control, and financial performance analysis, and directly impacts strategic and operational decision-making.

Vira Accounting Software helps businesses manage their financial processes with high accuracy and speed. This software, covering all accounting principles, enables automated recording and reporting of financial transactions. Other advantages of accounting in ERP software like Vira include its integration with other departments such as sales, purchasing, and inventory, effectively assisting in financial and tax management. With this system, businesses can generate accurate and timely financial reports and prevent financial issues while simultaneously improving organizational efficiency.

Everything About Accounting: From Definition to Practical Applications

Accounting is one of the popular university majors, directly related to financial and economic management of organizations and businesses. This field specifically teaches students how to correctly and accurately record, analyze, and report financial data.

Accounting definition simply means recording and classifying financial information, which helps assess the financial status of an organization and make strategic decisions. Given the importance of accounting, this field not only introduces students to accounting principles and fundamentals but also emphasizes more complex topics such as financial accounting, managerial accounting, tax accounting, auditing, and financial reporting.

Educational Path in Accounting: From University to the Job Market

Students in this field initially become familiar with basic accounting principles such as the balance sheet, income statement, cash flow, and accounting documents. In higher levels of study, more complex topics such as financial analysis, financial forecasting, cost accounting, risk management, investment evaluation, and tax issues are taught. Therefore, studying accounting directly requires technical and analytical skills essential for entering the job market.

During their studies, students usually learn these concepts theoretically, but success in the job market requires the ability to apply these concepts in real-world and practical conditions. Therefore, many universities and educational institutions provide internships and practical opportunities in various companies and organizations to enhance students’ academic and professional skills. These courses allow students to apply learned concepts in real conditions and gain practical accounting experience.

Accounting Career Opportunities in Various Industries

After graduation, many individuals choose to enter different fields of accounting. Some accounting graduates pursue financial accounting, which involves preparing and analyzing financial statements and reporting the financial status of companies. Others may be interested in managerial accounting, focusing on cost and budget analysis, financial forecasting, and evaluating internal financial performance. Additionally, tax accountants work in calculating and reporting taxes, and auditors are responsible for verifying the accuracy of financial reports.

The Role of Accounting Software in Professional Success

Today, proficiency in accounting software is one of the essential prerequisites for entering the job market. Accountants must be able to use specialized accounting software to accurately record and report financial data. Additionally, the ability to analyze financial data and make decisions based on it is another skill that helps accountants succeed in the job market.

In Iran, many accounting graduates work in large companies, financial institutions, banks, insurance companies, and even government organizations. For example, in banks and financial institutions, accountants manage financial transactions, prepare financial statements, and supervise their accuracy. In large companies, accountants manage costs, revenues, and financial planning to help organizations achieve their financial goals.

Ultimately, for those seeking to enter the accounting job market, it is essential not only to have academic education but also to strengthen practical skills and gain work experience. Familiarity with accounting software, the ability to analyze financial data, and gaining experience in practical environments can significantly contribute to career success.

Accounting Principles from A to Z: A Dictionary for Everyone

A

• Depreciation
  Depreciation refers to the decrease in value of fixed assets such as machinery, equipment, or buildings due to continuous use, wear and tear, or passage of time. This reduction in value is recorded in accounting to reflect the actual cost of using these assets in financial reports. Common methods of calculating depreciation include straight-line, declining balance, and production methods. Recording depreciation contributes to financial transparency and accurate cost allocation.
• Tax Credit
  A tax credit is an amount that taxpayers can use to reduce their payable taxes. This credit may be granted due to previous tax payments or as a government incentive to companies and individuals. A tax credit directly reduces payable taxes, unlike tax deductions, which only reduce taxable income.
• Accounting Principles
  Accounting principles are a set of standards, concepts, and rules used for financial recording, analysis, and reporting. These principles include concepts such as matching, full disclosure, consistency, and prudence. Adhering to accounting principles ensures the integrity and transparency of financial information.

B

• Liability
  Liabilities include all financial obligations of an organization that must be paid in the future. These obligations may arise from bank loans, credit purchases, or other financial contracts. Liabilities are divided into current (such as accounts payable) and long-term (such as long-term loans). Managing liabilities is crucial for maintaining the financial health of the organization.
• Debtor
  In accounting, a debtor refers to the side of an account that shows an increase in assets or expenses. For example, when an organization purchases goods, the inventory account is debited. Accurate recording of debit items is essential for balancing financial books.
• Creditor
  A creditor is the side of an account that shows an increase in liabilities or revenues. For example, when an organization makes a sale, the sales revenue account is credited. Crediting an account usually represents an inflow of financial resources to the organization.

C

• Prepayment
  Prepayment refers to an amount paid before receiving goods or services. This amount is recorded as a current asset in the books and is not removed from the asset account until the goods or services are received. Prepayments are usually used for rents, insurance, and supply contracts.
• Budget Forecasting
  Budget forecasting is a process in which expected costs and revenues for a future financial period are estimated. This tool helps managers allocate financial resources efficiently and prevent financial deviations. Budget forecasting requires analysis of historical data and current trends.

 

D

• Balance Sheet
  The balance sheet is a report that shows the financial position of an organization at a specific point in time. It includes assets, liabilities, and shareholders’ equity, helping managers and investors evaluate the financial health of the organization. The balance sheet is one of the three main financial statements in accounting.
• Matching Principle
  This accounting principle states that expenses related to earned revenues should be recorded in the same period. For example, the cost of raw materials should be recorded simultaneously with the revenue from product sales. This principle helps provide an accurate picture of the organization’s financial performance.

E

• Double-Entry Accounting
  Double-entry accounting is a method in which two entries are made for each transaction: one on the debit side and one on the credit side. This method ensures that accounts are always balanced. For example, if goods are purchased, the inventory account is debited and the cash account is credited.

F

• Cash Flow
  Cash flow includes all cash inflows and outflows in an organization during a period. This flow is categorized into operating, investing, and financing activities. Managing cash flow is essential to ensure financial obligations are met and liquidity is maintained.
• Asset Component
  An asset component refers to any part of an organization’s assets that can be independently identified and used. For example, an industrial machine may include different parts such as motors and mechanical components, each of which has separate value.

G

• Bounced Check
  A bounced check is a check that a bank does not pay due to reasons such as insufficient funds, signature mismatch, or technical issues. In accounting, a bounced check is recorded as a liability, and tracking it is important both legally and financially. Organizations should have policies to reduce such occurrences.
• Received Check
  A received check is a payment instrument recorded as part of the organization’s receivables. Until the check is collected, it is recorded as a non-cash current asset. Proper management of received checks directly affects the organization’s liquidity.

H

• Accrual Accounting
  Accrual accounting records revenues and expenses when they are earned or incurred, not when cash is received or paid. For example, if a service is provided but payment has not yet been received, the revenue is still recorded. This method provides a more accurate picture of financial performance.
• Shareholders’ Equity
  Shareholders’ equity represents the owners’ share of an organization’s assets after deducting liabilities. It includes initial capital, retained earnings, and other reserves. Shareholders’ equity is a key component of the balance sheet and helps evaluate the net worth of the organization.

I

• Credit Purchase
  A credit purchase is a transaction in which goods or services are received, but payment is deferred to the future. These transactions are usually recorded as liabilities and help manage the organization’s cash flow.
• Net Assets
  Net assets equal total assets minus total liabilities. This amount represents the organization’s net financial value and is important in assessing financial status. Net assets are usually shown on the balance sheet.

J

• General Ledger
  The general ledger is a collection of accounts used to record the organization’s financial transactions. Each account in the ledger has a debit and credit side. This ledger forms the basis for financial reports such as the balance sheet and income statement.
• Realized Revenue
  Realized revenue is income for which the organization has met all the necessary recognition conditions. For example, when goods are delivered to a customer who is obligated to pay, the revenue is recorded as realized.

K

• Financial Audit
  Financial audit is a process in which accounts and financial documents are reviewed to ensure the accuracy of financial information. This is usually conducted by internal or external auditors to prevent fraud and errors.
• Financial Reserve
  A financial reserve is an amount set aside by the organization to cover unexpected expenses or future obligations. This reserve is usually recorded in financial statements as a contingent liability or provision.

M

• Subaccounts
  Subaccounts include more detailed accounts within a main account group. For example, the “Current Assets” account may include “Cash & Bank,” “Accounts Receivable,” and “Inventory.” This classification helps in detailed financial analysis.
• Cost Timing
  Cost timing refers to the process of allocating expenses across different financial periods. This method helps organizations recognize costs more accurately in line with related revenues.

N

• Income Statement
  The income statement is a primary financial report showing an organization’s financial performance over a specific period. It includes revenues, expenses, and net profit or loss, helping managers make better strategic decisions.
• Short-term Investment
  Short-term investment refers to investments that the organization intends to liquidate within a year. These are usually in highly liquid financial instruments such as stocks or bonds.