Professional Documents
Culture Documents
ACCOUNTING OVERVIEW
Objectives of Financial Reporting Provide information that is useful in credit and investment decision making. Provide the users with a tool to assess the amounts, timing and prospects of future cash flows of an entity. Provide relevant information regarding the entitys resources, claims against these resources and changes in them.
ACCOUNTING OVERVIEW
Accounting Definition Identifying, gathering, organizing and summarizing of financial information about an economic units financial activities to interested parties.
ACCOUNTING OVERVIEW
Financial Accounting The process that culminates in the preparation of financial reports relative to an enterprise as a whole for internal and external users.
ACCOUNTING OVERVIEW
Managerial Accounting The process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of financial information used by management to plan, evaluate and control within an organization and to assure appropriate use of and accountability for the entities resources.
ACCOUNTING OVERVIEW
Financial Management
Efficient use of the sources and uses of funds Dividend payout, debt restructuring, mergers, acquisitions, corporate reengineering Focus on both internal and external conditions Global economy Forecasting and planning Coordination and control of the entities activities Dealing with the financial markets, banks & other financing institutions Risk management Maximize business value
ACCOUNTING OVERVIEW
Journal entries Subsidiary journals Dual system of entry debits and credits Grouping of common activities
Summarization
Financial statements
ACCOUNTING OVERVIEW
Objectives of an Accounting System Present fairly the financial condition of an entity Summarizes economic activity and reports such activities via a report. GAAP
Generally Accepted Accounting Principles Established by: FASB, SEC, AICPA & GASB International Accounting Practices, Industry, Management Groups Generally Accepted Auditing Standards
GAAS
ACCOUNTING OVERVIEW
Generally the source or cause of changes in assets, liabilities, and equity accounts internal and external External event between two or more entities Reflects the impact of certain activities on a specific account each asset, liability, equity, revenue/sales and expense has its own account
Transaction
Account
ACCOUNTING OVERVIEW
Basic Accounting Terminology General Ledger Subsidiary Ledger General Journal Trial Balance Adjusted Trial Balance Adjusting Entries Closing Entries
ACCOUNTING OVERVIEW
Subsidiary Journals
ACCOUNTING OVERVIEW
Financial Statement
Trial Balance
General Ledger
SJ
CR
CM
CD
PUR
JE
Source Documents
2-10
Durkin Group LLC / RBN
ACCOUNTING OVERVIEW
Are they increases or decreases? It depends on what? Assets and Expenses Increase by debiting Decrease by crediting Liabilities, Equity, Partners Capital & Revenue Increase by crediting Decrease by debiting Dual accounting entries / compound entries Debits = Credits
ACCOUNTING OVERVIEW
Assets
Liabilities
Owners Equity
Liabilities
Partners Capital
ACCOUNTING OVERVIEW
ACCOUNTING OVERVIEW
Common Stock
Retained Earnings
Revenues
Expenses
Assumptions Principles Modifying Conventions Role of the accountant regarding financial statements Role of management regarding financial statements
Economic Entity Assumption The economic activity of an entity can be kept separate and distinct from its owners and any other business unit. The entity concept is not necessarily a legal entity concept; a parent and its subsidiaries are separate legal entities, but merging their activities for accounting and reporting purposes is not a violation of the economic entity assumption.
Going Concern Assumption Most accounting methods are based on the premise that the business enterprise will have a long life. Acceptance of this assumption provides credibility to the historical cost principle.
Monetary Unit Assumption Implies which monetary unit is the most effective means of expressing economic activity.
Periodicity Assumption Implies that the economic activities of an enterprise can be divided into artificial time periods, i.e.: monthly, quarterly or annually. This allows for comparative analysis.
Revenue Recognition Principle Revenue is recognized at a point in the earnings process when:
all, or a substantial portion, of the services to be provided have been performed and cash, receivables or some other asset susceptible to objective measurement is achieved.
Historical Cost Principle Non-monetary assets are initially recorded at their acquisition cost. Non-monetary assets are stated at acquisition cost until all or a portion of their service potential has been consumed. At this time, all or a portion of the acquisition cost becomes an expense.
Matching Principle Expenses directly associated with particular revenues are recognized as expenses in the period which the revenues are recognized.
Consistency Principle Accounting principles and procedures selected by an entity should be used consistently over time.
Full Disclosure Principle Information in the financial statements is presumed to be sufficiently adequate so that a reader can make an informed judgment or decision.
Objectivity Principle Information is objective and verifiable, essentially similar measures and conclusions would be reached if two or more persons examined the same data.
Modifying Conventions Because there are certain exceptions in the practical application of these six principles.