Accounting consists of three activities
- Identification (transactions)
- Recording
- Communication
- Preparing accounting reports
- Analyze and interpret for users
Who uses accounting data?
Internal Users
- Finance
- Marketing
- Human resources
- Management
External Users
- Investors
- Creditors
Language of business:
1- Reliable
2- Relevant
3- Consistent
4- Comparable
Bookkeeping does not encompass all steps in the accounting process
Accountants prepare AND interpret financial reports
Managerial accounting focuses on reports for internal users
Building blocks of Accounting
Ethics in financial reporting depends on sound ethical behaviour, it includes right or wrong, honest
or dishonest, and fair or not fair.
Generally Accepted Accounting Principles (GAAP)
Standards that are generally accepted and universally practiced.
- Financial Accounting Standards Boards (FASB)
- International Accounting Standards Board (IASB)
- Convergence refers to efforts to reduce differences between IFRS and U.S. GAAP
- The primary accounting standard-setting body headquartered in London is the International
Accounting Standards Board (IASB).
, Measurement Principles
Historical Cost Principle
- Record assets at their cost
Fair Value Principle
- Assets and liabilities should be reported at fair value
Assumptions
Monetary Unit Assumption
- Only transaction data that can be expressed in terms of money
Economic Entity Assumption
- Activities of entity be kept separate and distinct from activities of its owner and all other entities
Forms of Business Ownership
- Proprietorship
- Partnership
- Corporation
Accounting Equation:
Assets = liabilities + owner’s equity
- Provides underlying framework for recording and summarizing economic event
- Assets are claimed by either creditors or owners
- If a business is liquidated, claims of creditors must be paid before ownership claims
Assets:
- resources a business owns
- provide future services or benefits
- cash, supplies, equipment, etc.
Liabilities:
- Claims against assets (debts and obligations)
- Creditors (party to whom money is owed)
- Accounts Payable, Notes Payable, Salaries and Wages Payable, etc.
Owner’s Equity:
- Ownership claim on total asset
- Referred to as residual equity
- Investment by owners and revenues (+), Drawings and expenses (-)
- Identification (transactions)
- Recording
- Communication
- Preparing accounting reports
- Analyze and interpret for users
Who uses accounting data?
Internal Users
- Finance
- Marketing
- Human resources
- Management
External Users
- Investors
- Creditors
Language of business:
1- Reliable
2- Relevant
3- Consistent
4- Comparable
Bookkeeping does not encompass all steps in the accounting process
Accountants prepare AND interpret financial reports
Managerial accounting focuses on reports for internal users
Building blocks of Accounting
Ethics in financial reporting depends on sound ethical behaviour, it includes right or wrong, honest
or dishonest, and fair or not fair.
Generally Accepted Accounting Principles (GAAP)
Standards that are generally accepted and universally practiced.
- Financial Accounting Standards Boards (FASB)
- International Accounting Standards Board (IASB)
- Convergence refers to efforts to reduce differences between IFRS and U.S. GAAP
- The primary accounting standard-setting body headquartered in London is the International
Accounting Standards Board (IASB).
, Measurement Principles
Historical Cost Principle
- Record assets at their cost
Fair Value Principle
- Assets and liabilities should be reported at fair value
Assumptions
Monetary Unit Assumption
- Only transaction data that can be expressed in terms of money
Economic Entity Assumption
- Activities of entity be kept separate and distinct from activities of its owner and all other entities
Forms of Business Ownership
- Proprietorship
- Partnership
- Corporation
Accounting Equation:
Assets = liabilities + owner’s equity
- Provides underlying framework for recording and summarizing economic event
- Assets are claimed by either creditors or owners
- If a business is liquidated, claims of creditors must be paid before ownership claims
Assets:
- resources a business owns
- provide future services or benefits
- cash, supplies, equipment, etc.
Liabilities:
- Claims against assets (debts and obligations)
- Creditors (party to whom money is owed)
- Accounts Payable, Notes Payable, Salaries and Wages Payable, etc.
Owner’s Equity:
- Ownership claim on total asset
- Referred to as residual equity
- Investment by owners and revenues (+), Drawings and expenses (-)
