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Summary Everything you need to pass Accounting
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Summary based on the course from the ebest university in Germany, TUM, with everything you need to pass Accounting
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AccountingIntroduction
Types of economic units:
o Public budget
o Private person
o Enterprise
Company
Public authorities and administration
Company
o A company is deemed to exist if a legal or natural person is entrepreneurially
planning and operating
o Industrial / service / disposal companies
Purpose of accounting
o Provide useful information for making good decisions and ultimately increase
social welfare
Information about the (ex-ante) prospect of a company
Basis for financing of entrepreneurs (valuation role)
Information about the (ex-post) performance of a company
Basis for managing companies and holding managers
accountable (stewardship role)
Information for contracts of companies/managers with others
Basis for contracts (contracting role)
Targets
o Performance
Offer of certain services
o Safety
Risk reduction
o Success
Profit maximization
Increase in market share
Process of accounting
o Business transactions are recorded according to rules and aggregated
information are disseminated to the public
, Economic Activity
Order-to-cash
, Consequences of accounting
o (Expected) accounting-based decisions have feedback loops to judgment
o Earnings management
Intentionally influencing the process of financial reporting to obtain
some private gain
Mislead stakeholders
Not illegal within the GAAP
Incentives for doing earnings management
Performance-based compensation
o E.g., bonus payment
Raising capital
o IPOs, SEOs
Meet/beat targets
o Increase firm valuation and managerial target
Avoid debt covenant violations
Quiet life
o Smooth accounting performance is less burdensome
to explain
Counter measures:
Supervisory board and audit committee
Financial Auditors
Enforcement bodies
Other corporate governance mechanisms
Business Accounting
, Terms of Accounting
Cash-outflow:
o Cash and cash equivalents that are spent by the company within a period.
Every cash-outflow decreases the amount of cash on hand and cash in banks
Cash-inflow:
o Cash and cash equivalents that flow directly to the company within a period.
Every cash-inflow increases the amount of cash on hand and cash in banks
Expenditure:
o Monetary value of a company’s acquired economic good within a period.
Regardless whether the cash-outflows are made in the previous or following
years
Receipts:
o Monetary value of a company’s delivered economic goods within a period.
Regardless whether the cash-inflows are made in the previous or following
years
Expense:
o Expenditures periodised and net income affecting. The period expense equals
the amount of all consumed respectively used economic goods within that
period
Income:
o Receipts periodized and net income affecting. The period income equals the
amount of realized increase in value within that period
Cost:
o Monetarily assessed consumption of goods and services due to providing
goods and services
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