Principal Accounting 1 — 7-topic bundle

The primary goal of accounting is to provide useful information for decision-making. This is achieved through financial statements, which you'll learn more about later.

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When a company manufactures goods, its inventory isn't just one type. Instead, you'll deal with three main inventory accounts:
* Raw Materials Inventory: These are the basic materials you buy to make your product (e.g., wood for furniture, flour for bread).
* Work-in-Process (WIP) Inventory: This is where goods are currently being manufactured but aren't yet finished. Costs like direct materials, direct labor, and manufacturing overhead get added here.
* Finished Goods Inventory: These are complete products ready to be sold to customers.

Managing cash and receivables is about optimizing the cash conversion cycle. You want to get cash from sales as quickly as possible and use it wisely.

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An accounting system is essentially a structured way to handle all your business's financial transactions. It takes raw data (like sales receipts or invoices), organizes it, turns it into useful information (like financial statements), and then communicates that information to people who need it.

There are a few main types of accounting systems:

There are two primary inventory systems:

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The accounting cycle begins with identifying and recording financial transactions. A "transaction" is any event that affects a company's financial position and can be reliably measured in monetary terms.

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You've learned about recording transactions as they happen. But some events, like using up supplies or earning revenue over time, aren't tied to a specific cash transaction right away. That's where adjusting entries come in. They're made at the end of an accounting period (e.g., month, quarter, year) to ensure your financial statements follow the accrual basis of accounting. This means: