Accounting foundations
Clear definitions and practical examples to help you understand the numbers and decisions.
Accounting
Accounting turns business activity into information about performance, resources, obligations, and cash. It starts with evidence—such as contracts, invoices, delivery records, payroll, and bank activity—then classifies and records the event in the right accounts and reporting period.
Read the explanationBookkeeping
Bookkeeping records transactions from evidence and keeps the detailed accounting records current. It is not simply typing an invoice: the record must reflect what happened, when it happened, and which accounts it affects. Accounting later reviews and explains those records.
Read the explanationFinancial accounting
Financial accounting prepares general-purpose financial statements under the applicable reporting framework for users outside the daily operation. It reports recognised performance, financial position, cash flows, and disclosures for the reporting entity and period; it is not a tailored management dashboard.
Read the explanationManagement accounting
Management accounting builds timely financial and operating information for a decision inside the business. Its format can differ from external reporting because it should reveal the driver management can change, not merely meet a presentation requirement.
Read the explanationDouble-entry bookkeeping
Double-entry bookkeeping records every transaction through equal total debits and credits. The entries affect at least two accounts, preserving the accounting equation. Debit and credit describe entry directions; they do not automatically mean increase and decrease without knowing the account type.
Read the explanationAccounting equation
The accounting equation is assets = liabilities + equity. Assets are resources controlled by the entity; liabilities are present obligations; equity is the residual interest after liabilities. Every recognised transaction must keep this relationship in balance, although each category contains many accounts.
Read the explanationDebits and credits
Debit and credit are labels for the left and right sides of an account. Their effect depends on the account’s normal balance: for example, a debit commonly increases an asset or expense, while a credit commonly increases a liability, equity, or revenue. The total debits and credits in each entry must match.
Read the explanationChart of accounts
A chart of accounts is the organised list of account codes and names used to classify transactions in the general ledger. It groups accounts into categories such as assets, liabilities, equity, revenue, and expenses. A useful chart is detailed enough to explain decisions but not so fragmented that reporting becomes unreliable.
Read the explanationGeneral ledger
The general ledger is the central record containing the accounts used to build the trial balance and financial statements. It collects posted journal entries by account and period. Subledgers may hold transaction detail, but their balances should reconcile to related general-ledger control accounts.
Read the explanationSubsidiary ledger
A subsidiary ledger holds transaction-level detail for a particular class of balances, such as customer receivables, supplier payables, or inventory items. Its total is normally linked to a control account in the general ledger. The subsidiary ledger explains who or what makes up the total balance.
Read the explanationJournal entry
A journal entry records an accounting event by specifying the accounts debited and credited, the amount, date, description, and supporting evidence. Entries can arise from routine systems, such as invoicing, or from controlled manual adjustments. A journal is not reliable merely because it balances.
Read the explanationTrial balance
A trial balance is a dated list of the balances in the general ledger, arranged so that total debits can be compared with total credits. Double-entry bookkeeping should make the two totals equal: each recorded transaction has a debit and a credit. That check finds some posting errors, but it does not establish that the right transaction was recorded in the right account or period. A missing sale, a duplicated invoice recorded on both sides, or a valid-looking amount posted to the wrong expense account can still leave the trial balance equal.
Read the explanationAccrual accounting
Accrual accounting records the economic effect of a transaction when goods or services are received or provided, not only when cash changes hands. It therefore assigns revenue and expenses to the period they relate to and recognises a related receivable, payable, prepayment, or other balance when the reporting requirements are met. Cash still matters, but cash movement answers a different question: whether the company has money available.
Read the explanationCash accounting
Cash accounting records income when money is received and expenses when money is paid. It gives a direct view of bank movement and may suit simple monitoring or contexts that permit it. It does not, by itself, show unpaid supplier obligations, revenue already earned but not collected, or goods and services consumed before payment. For general-purpose IFRS financial statements, it is not the accrual basis required for reporting performance and financial position.
Read the explanationAccounting period
An accounting period is the defined span—often a month, quarter, or year—for which a business measures performance and financial position. The boundary matters because revenue, costs, assets, and liabilities must be assigned to the period in which their economic effect occurred, subject to the applicable reporting rules. An invoice date is evidence, not always the deciding date: delivery, service completion, and contractual terms may determine the right period.
Read the explanationSource documents
Source documents are the original or reliable records that support a transaction. Depending on the transaction, they include a contract, approved purchase order, supplier invoice, goods-received note, customer acceptance, bank confirmation, receipt, payroll register, or credit note. Each document answers part of a different question: who authorised the commitment, what was delivered, how much was billed, and whether payment occurred.
Read the explanation