The following information is related to Indiana University functions solely and is not applicable for Indiana University Foundation.
Overview of Accounting Terminology, Accounting Principles, and Normal Balances
The Accounting Fundamentals section is intended to provide an understanding of commonly used Accounting Terminology at IU along with the main Accounting Principles. This section also discusses the definition of Normal Balances and how balances are recorded at IU. This information will serve as the foundation for subsequent sections within the IU Accounting Standards Book.
Accounting Terminology is necessary to understand transactions within the accounting function and to ensure accuracy of financial information.
Accounting Principles are general rules and guidelines that entities must follow in order to accurately report their financial statements. IU is required to adhere to the five accounting principles as required by the Government Accounting Standards Board (GASB) and are important to ensure that financial information is accurate and understandable to both internal users and external stakeholders.
The five basic accounting principles are as follows:
Normal Balances are the expected balance type in the object code (debit/credit). This determines whether the account value should be increased or decreased with a debit/credit entry. Understanding the normal balance of the object code is necessary when evaluating the financial statements.
Financial Transaction Substantiation refers to detailed original source documentation and/or work papers that support financial transactions showing why and how a transaction was completed. Substantiating financial transactions ensures the integrity of an entity’s financial reports and is an important tool for account management and preparation for external audits.