The purpose of AccountingAccounting studies the property of entities so that it can be controlled and so that useful information is available for decisions about their economic activities. Each group of users looks for different answers in that information.What owners look forUnderstanding the risks of the business, its costs and the return on the capital invested.What managers look forKnowing costs, contribution margin, break-even point and prices, and making decisions based on past and present data to plan for the future.What lenders look forAssessing the entity's ability to pay and its level of debt.What the government looks forCalculating and auditing the collection of taxes (taxes, fees and contributions) and obtaining data to shape economic policy.What minority shareholders look forA regular flow of dividends and the safety of their investment.What employees look forWhether the company can pay wages on time and what its growth prospects are.Branches of AccountingAccounting is divided into areas according to the scope of its application. The main ones are Financial (or Corporate) Accounting, Management Accounting, Cost Accounting and Tax Accounting:a) Financial or Corporate Accounting — mandatory. It presents information to external users (investors, creditors, government) and therefore follows accounting standards — in Brazil, Law No. 6,404/76 (the Corporations Law) and the pronouncements of the CPC (Comitê de Pronunciamentos Contábeis, the body that adapts IFRS to Brazil) — which define how items are classified in the Balance Sheet and when revenue is recognised. It provides the means for the entity to prepare:the bookkeeping of the transactions that affect its property;the financial statements;the presentation of the economic and financial changes in its property.b) Management Accounting — optional. It focuses on information useful to the entity's managers, including historical and estimated data used to run daily operations, plan future operations and develop strategies. This information helps decide, for example, whether the company should launch a new product or drop an existing one, whether it should make a certain component itself or hire another company to produce it, and even what price to charge for a new product. These decisions can determine the company's future profitability and survival.c) Cost Accounting — measures and reports financial and non-financial information on the acquisition and consumption of resources by the organisation, including what is needed to measure inventories, and is a major support for Financial Accounting. It sits in an area of overlap between Financial and Management Accounting.d) Tax Accounting — deals with the taxes (taxes, fees and contributions) the company must calculate and pay, with tax planning and with the returns and reports required by law by the tax authorities, especially the Federal Revenue Service of Brazil (RFB). It is not the same as Financial or Corporate Accounting. It is an area in full transformation: with Brazil's tax reform (Constitutional Amendment No. 132/2023 and Complementary Law No. 214/2025), the new value-added taxes CBS and IBS started in 2026 with test rates and will gradually replace PIS, Cofins, IPI, ICMS and ISS by 2033.To decide whether to make a part in its own factory or buy it from another company, a manager relies mainly on which branch of Accounting?Answer: Management Accounting — it produces information for internal decisions, such as make or buy. Corporate Accounting is aimed at external users and follows presentation standards; it was not designed for this kind of choice.Basic conceptsProperty (patrimônio)The set of goods, rights and obligations of an entity (company), measured in money — the elements needed for it to exist and operate.Share CapitalThe amount the partners undertake to invest in the company, in cash or in goods and rights that can be valued in money. At the start, share capital is the company's entire equity, but the two concepts are not the same: once the company begins to accumulate its own resources (retained earnings, reserves), share capital becomes only part of equity.Company or EntityAny individual or legal entity that owns and manages property. From an economic standpoint, a company results from the combination of three factors of production: nature (natural resources), capital and labour.GoodsAnything that can be valued economically and that satisfies human needs.TangibleThey have a physical existence, as a thing or object.E.g.: cash, goods for resale, real estate, machinery, vehicles, furniture, equipment.IntangibleThey have no physical existence, but they have economic value.E.g.: trademarks, patents, software, copyrights.RightsAmounts belonging to the entity that are in the hands of third parties (amounts receivable).E.g.: trade notes receivable, securities receivable, promissory notes receivable, rent receivable, customers, bank deposits, financial investments.ObligationsAmounts belonging to third parties that are in the hands of the entity (amounts payable).E.g.: trade notes payable, securities payable, promissory notes payable, rent payable, suppliers, taxes payable, wages payable.Full OwnershipWhen the entity has both possession and ownership of an asset — that is, the asset is its own and is in its hands.Result (rédito)The outcome of economic activity that changes the entity's property: profit or loss.Accounting basisThe accounting basis is the criterion used to define in which period revenue or an expense is recorded. There are two: the cash basis and the accrual basis.Cash basisThe result is determined by comparing the receipts and payments of the period: transactions are only recorded when money comes in or goes out. If the company incurs an expense in January and only pays it in March, it is recorded in March.The cash basis is not accepted by accounting standards for the accounts of companies or of non-profit entities (which also follow the accrual basis, under the Brazilian interpretation ITG 2002). It is used in financial control (cash flow), in the cash books of individuals and self-employed professionals, and as an option for tax purposes only under some regimes, such as Presumed Profit (Lucro Presumido) and the Simples Nacional (a simplified tax regime for small businesses).Accrual basisThe result is determined by comparing the revenue and expenses of the period in which they occurred, regardless of receipt or payment. It is the basis required by Law No. 6,404/76 and by accounting standards (CPC 00, the Conceptual Framework) for the accounts of all entities.In practice, if the company incurs an expense in January and only pays it in March, it is recorded in January (with an account payable in liabilities); in March, only the payment is recorded.Fiscal yearThe period, usually one year (12 months), at the end of which the entity determines its result and prepares its financial statements. It may or may not coincide with the calendar year, as set out in the articles of association (article 175 of Law No. 6,404/76). For income tax purposes, however, the assessment period of legal entities follows the calendar year.Treasury sharesShares of the company itself that it has bought back from shareholders and holds (article 30 of Law No. 6,404/76). They are not the same as shares that have not yet been issued, which simply do not exist. Treasury shares appear in equity as a contra account, that is, they reduce its value. While held in treasury, they receive no dividends and have no vote; so the profit distributed is divided among the outstanding shares, and each receives a larger amount.DepreciationThe systematic allocation of the cost of a fixed asset over its useful life, reflecting wear and tear from use, the action of nature or obsolescence (CPC 27, equivalent to IAS 16). It reduces the asset's carrying amount (through the contra account Accumulated Depreciation) and is recorded as an expense or cost. Land, as a rule, is not depreciated.A store sells R$ 20,000 of goods in December, to be collected in January. Under the accrual basis, when is the revenue recorded?Answer: In December — revenue belongs to the period in which the sale occurred, regardless of collection; a receivable from Customers also arises in December. In January, only the cash received is recorded. Recording it in January would be the cash basis.A company has share capital of R$ 500,000 and reserves of R$ 100,000, with no other equity accounts. It buys back its own shares for R$ 30,000 and holds them in treasury. What is its equity now?Answer: R$ 570,000 — treasury shares are a contra equity account: 500,000 + 100,000 − 30,000. Adding the R$ 30,000 (R$ 630,000) is the mistake of treating the buyback as an investment in assets.The accounting techniquesTo achieve its goals, Accounting uses four techniques:Bookkeeping: recording the events that change the entity's property, continuously and methodically, supported by the documents relating to those events;Financial statements: presenting useful, timely and adequate information, according to the user's needs;Auditing: examining the records and financial statements to check whether they fairly represent the entity's property and the events that took place;Financial statement analysis: turning the data in the statements into indicators and information useful to the various users.The Accounting Principles and today's Conceptual FrameworkFor decades, Brazilian accounting was based on the Accounting Principles of CFC Resolution No. 750/1993 (updated by CFC Resolution No. 1,282/2010; the CFC is the Federal Accounting Council). They still appear in many books and in Brazilian public-service exams, so they are worth knowing. But note: that resolution has been revoked and, since 2017, the basis of accounting standards is the Conceptual Framework (CPC 00, now in revision R2, equivalent to the IASB's Conceptual Framework), which deals with the same topics differently. Here is each principle and what applies today.Entity PrincipleRecognises property as the object of Accounting and asserts the separation of property: the entity's property is not to be confused with that of its partners or owners. The idea still holds: the Conceptual Framework defines the "reporting entity", and its statements are separate from those of its owners.Going Concern PrincipleAssumes the entity will continue operating for the foreseeable future. If there is an intention or need to cease operations, this changes how the property is measured and classified. In today's Conceptual Framework, going concern is the underlying assumption of the financial statements.Timeliness PrincipleRefers to recording changes in property at the right time and in full. Today, the idea appears in the qualitative characteristics of information, such as timeliness.Original Value PrincipleComponents of property must be recorded initially at the original value of the transactions, in the national currency. After initial recognition, they may be adjusted using other measurement bases (such as fair value or realisable value). Today's Conceptual Framework addresses the topic as "measurement bases": historical cost and current value.Monetary Restatement PrincipleIt required values to be adjusted for the loss of purchasing power of the currency. It was abolished by CFC Resolution No. 1,282/2010, and its content was merged into the Original Value Principle. In Brazil, inflation adjustment of financial statements has not been made since 1996 (Law No. 9,249/1995); it only applies in hyperinflationary economies (CPC 42, equivalent to IAS 29).Prudence PrincipleIn the old version, it required that, between equally valid alternatives, the lowest value be chosen for assets and the highest for liabilities, resulting in the lowest equity. Today's Conceptual Framework (CPC 00 R2) changed this view: prudence means exercising caution when making judgements under uncertainty, without overstating or understating assets, liabilities, income and expenses, so that the information is neutral.Accrual PrincipleRevenue and expenses must be included in the result of the period in which they occur, always simultaneously when they are related, regardless of receipt or payment. It is still the basis of financial statements (the accrual basis is required by CPC 00).Example: a store pays R$ 10,000.00 (Brazilian reais) in advance in March for goods that will only be delivered in April. In March, it records a right — Advances to Suppliers, in assets — not inventory. Only in April, when it receives the goods (and gains control of them), is the amount transferred to Inventories. On the supplier's side, the March receipt is a liability (Advances from Customers), and revenue is only recognised when the goods are delivered (CPC 47, equivalent to IFRS 15), not when the money comes in.Under today's Conceptual Framework (CPC 00 R2), what does prudence mean?Answer: Exercising caution when making judgements under uncertainty, without overstating or understating assets, liabilities, income and expenses — the rule of always choosing the lowest equity belonged to the old Prudence Principle (CFC Resolution 750/93), which no longer applies.Balance sheet itemsAssetsThe set of the entity's goods and rights (the positive part of its property), also called gross property. Under the Conceptual Framework, an asset is a present economic resource controlled by the entity as a result of past events.LiabilitiesThe set of obligations (the negative part of property), also called third-party capital or liabilities payable. Under the Conceptual Framework, a liability is a present obligation of the entity to transfer an economic resource as a result of past events.EquityThe difference between assets and liabilities — the residual interest of the partners or shareholders in the entity's assets after deducting all its liabilities. It is the part of property that measures the entity's net position; it is also called net position and, in older Brazilian terminology, "non-payable liabilities".The accounting equationEQUITY = ASSETS − LIABILITIESorEQUITY = Goods + Rights − ObligationsThe same equality gives the best-known form, the balance sheet one: ASSETS = LIABILITIES + EQUITY.Example: a company has R$ 50,000.00 in goods, R$ 30,000.00 in rights and R$ 45,000.00 in obligations. Its equity is 50,000 + 30,000 − 45,000 = R$ 35,000.00, and the balance sheet balances: assets of R$ 80,000.00 = liabilities of R$ 45,000.00 + equity of R$ 35,000.00.Equity positionsASSETS > LIABILITIESPOSITIVE / SURPLUS equityFavourable position: Equity (+) or NP (+).Occurs when goods and rights (assets) exceed obligations to third parties (liabilities).ASSETS < LIABILITIESNEGATIVE / DEFICIT equityUnfavourable position: Equity (−) or NP (−), also called uncovered liabilities.Occurs when goods and rights (assets) are lower than obligations to third parties (liabilities).ASSETS = LIABILITIESZERO equityZero position or apparent balance: A = L, so Equity = 0.Occurs when goods and rights (assets) equal obligations to third parties (liabilities).ASSETS = EQUITYFull ownership position: A = Equity, so L = 0.Occurs when assets equal equity; in this case, there are no obligations to third parties.LIABILITIES = NEGATIVE EQUITYNo-assets position: L = (−Equity), so A = 0.Occurs when obligations to third parties (liabilities) are equal in amount to negative equity; in this case, assets are zero.A company has goods of R$ 70,000, rights of R$ 20,000 and obligations of R$ 100,000. What is its equity position?Answer: Uncovered liabilities of R$ 10,000 — Equity = 70,000 + 20,000 − 100,000 = −10,000. Assets (R$ 90,000) do not cover the obligations, and equity is negative.Exercises1) (IBFC - 2022) In Accounting, there is the Accounting Equation, also known as the Basic Accounting Equation. Regarding its composition, it is correct to state:A) Equity + Assets = LiabilitiesB) Assets + Liabilities = EquityC) Liabilities – Equity = AssetsD) Assets – Liabilities = Equity2) (FAFIPA - 2022) Regarding the accounting equation, consider the statements:I- Subtracting Equity from Liabilities gives Assets.II- Subtracting Current Liabilities from Current Assets gives Non-Current Assets.Which is CORRECT:A) Only I is true.B) Only II is true.C) None of the alternatives.D) I and II are true.E) I and II are false.3) (IBFC - 2022) The table below shows the account balances of AA Ltda. on 30.10.20X2.Account balancesAmounts in R$Suppliers40,000.00Customers40,000.00Vehicles25,000.00Bank loans45,000.00Banks35,000.00Taxes payable20,000.00Inventories50,000.00Wages and charges payable25,000.00Profit Reserve23,000.00Equipment80,000.00Based only on the information above, and considering the basic equity equation, choose the alternative that shows, respectively, the company's Capital and Equity.A) R$ 167,000.00 and R$ 190,000.00B) R$ 100,000.00 and R$ 77,000.00C) R$ 55,000.00 and R$ 135,000.00D) R$ 135,000.00 and R$ 55,000.00E) R$ 77,000.00 and R$ 100,000.004) (IBFC - 2022) Regarding the Accounting Equation and its variations, one equity position shows no assets and occurs when obligations to third parties equal negative equity. In this case, we can say it is:A) Liabilities = EquityB) Assets = EquityC) Assets = LiabilitiesD) Assets < Liabilities5) (FUNDATEC - 2022) Among the financial statements, one of the main ones is the balance sheet. It shows the amounts of applications, total resources and third-party resources. Choose the alternative that corresponds to a positive accounting equation.A) A<L=Eq+B) A=L=Eq zeroC) L>A=Eq-D) L<A=Eq+E) A>L=Eq zero6) (CESPE / CEBRASPE - 2022) In the accounting equation,A) assets are inversely related to liabilities.B) assets are inversely related to equity.C) equity is directly related to assets.D) liabilities are directly related to equity.E) equity is directly related to liabilities.7) The next table shows the accounts of a certain company.accountamount (in R$)treasury shares50,000.00share capital180,000.00customers82,000.00accumulated depreciation35,000.00cash and cash equivalents10,000.00loans to associate23,000.00inventories40,000.00suppliers20,000.00property, plant and equipment105,000.00capital reserve15,000.00legal reserve12,000.00profit reserve20,000.00According to the basic accounting equation, this company's liabilities amount toA) R$ 20,000.00.B) R$ 28,000.00.C) R$ 68,000.00.D) R$ 40,000.00.E) R$ 48,000.00.8) (IUDS - 2022) Businessman João sets up a company to sell shoes with initial capital of R$ 45,000.00. At this initial moment, what is the company's net position?A) R$ 45,000.00.B) R$ 39,000.00.C) R$ 22,500.00.D) R$ 14,500.00.9) (EEAR - 2022) Among the possible net equity positions, which name does not describe the position "Assets lower than Liabilities"?A) Uncovered Liabilities.B) Positive Net Position.C) Negative Net Position.D) Deficit Net Position.10) (CESPE / CEBRASPE - 2025 - EMBRAPA - Technician – Area: Supply, Maintenance and Services – Sub-area: Management Support) Regarding public-sector accounting, judge the following item. "A liability is a present obligation of the entity, albeit arising from a past event."A) TrueB) FalseAnswers1) D — Equity = Assets − Liabilities.2) E — I is false: Assets = Liabilities + Equity, so Liabilities − Equity does not give Assets. II is false: Current Assets − Current Liabilities is net working capital, not Non-Current Assets.3) E — Assets: 40,000 + 25,000 + 35,000 + 50,000 + 80,000 = 230,000. Liabilities: 40,000 + 45,000 + 20,000 + 25,000 = 130,000. Equity = 230,000 − 130,000 = 100,000; Capital = 100,000 − 23,000 (profit reserve) = 77,000.4) A5) D — assets greater than liabilities, positive equity.6) C — with liabilities held constant, the larger the assets, the larger the equity.7) E — Assets: 82,000 + 10,000 + 23,000 + 40,000 + 105,000 − 35,000 = 225,000. Equity: 180,000 + 15,000 + 12,000 + 20,000 − 50,000 = 177,000. Liabilities = 225,000 − 177,000 = 48,000 (besides suppliers, there are R$ 28,000.00 of other obligations not listed).8) A — at the start, equity equals the capital invested.9) B10) A
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