Accounting Principles

Accounting principles courses are the basic building blocks that are used to teach students how accounting works and how to record and analyze transactions. The American Institute of Certified Public Accountants (AICPA) defines accounting as “the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof.” (Singh Wahla, Ramnik. AICPACommittee on Terminology. Accounting Terminology Bulletin No. 1 Review and Rèsumè.)

The principles of accounting courses are often taught over two semesters and entitled Principles I and Principles II. It is necessary to take the courses in order, as Principles II builds on the first class. The Principles I accounting course most often covers topics such as accrual versus cash basis accounting, the accounting cycle, preparation of financial statements for both service and manufacturing businesses, and internal controls. Also included are accounting for cash, receivables, payroll, inventories, fixed assets, and current liabilities.

The Principles of Accounting II course often includes the following topics: accounting methods used for managerial planning, control, and decision-making. This might cover budgeting, various costing techniques, statement analysis, cash flows, responsibility accounting, capital budgeting, pricing, and cost-volume profit analysis.

Both of these courses require a significant amount of homework. Working through problems and learning to post transactions using debits and credits correctly are critical to understanding how accounting transactions affect financial statements and management decision-making. Students often learn to post transactions manually and might use “T” accounts for analysis. “T” accounts provide a way for students to see visually that the debits and credits are “in balance” and correctly recorded. Once the student has analyzed with “T” accounts, the student may prepare the correct journal entry.

An accounting course such as Principles I or II might also require students to complete a practice set or project. This project describes the activities of a business and asks students to correctly record transactions from sales through collecting accounts receivable, buying inventory to paying bills, and other common transactions. Once the student records or journals the transactions, the student is asked to prepare financial statements for the company. This preparation follows precise rules showing how assets, liabilities, and owner’s equity stand at the end of the accounting period.

This type of accounting course can be found online; however, some students might benefit more from classroom participation where they have ongoing access to a teacher. These courses are also taught at business and technical schools, generally for those who are working toward an associate’s degree or as a stand-alone class. People who take these courses at a business college might become bookkeepers, or work in larger companies as those responsible for accounts receivable or payable.

Those who are working toward a bachelor’s or master’s degree in business or specializing in accounting will need to take both principles of accounting classes. These courses are sometimes difficult for business majors, and some feel that the courses are unnecessary. These students should consider that all the business decisions they might make in their careers have an impact on the company’s financial results. These are often called the bottom line, which refers to the net income number at the end of the company’s income statement. It is important to understand whether a decision will positively impact the company or have a negative result.

Even senior executives might have to answer questions about financial statements. This is especially true after the Enron scandal. Enron collapsed, filing bankruptcy in 2001 after restating financial statements for questionable accounting practices. As a result of the Enron fraud, the Sarbanes-Oxley Act was passed in 2002. This did several things. It established a Public Company Accounting Oversight Board to register and regulate all public accounting firms. It also required company executives to be more accountable for their businesses and their businesses’ accounting practices.