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Summary Accounting Business Administration
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Summary Accounting Business Administration
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lOMoAR cPSD| 11911780Accounting
Accounting course overview, year 1 business administration
Exam content:
- Lecture topics
- The complete textbook except chapters: 7,8,12,15,20 and 11
(learning objective 2)
- Appendix 10A, for the rest no appendices
, lOMoAR cPSD| 11911780
LO = Learning Objective
Lecture 1 – Chapter 1 & 2
■ Chapter 1: Accounting and the Business Environment
LO 1: Why is accounting important and list the users of accounting information
Why is accounting important?
-> As an organization you need to make a lot of decisions and these are based on financial
information. We need to know how to deal with this information
-> Accounting is the information system that measures business activities, processes the
information into reports, and communicates the results to decision makers
- Financial accounting -> for external uses (investors, consumers, banks etc.)
- Managerial accounting -> for internal uses
LO 2: Describe the organizations and rules that govern accounting
Generally Accepted Accounting Principles (GAAP)
- Guidelines that govern accounting
- Based on a conceptual framework
-> Information should be relevant: the info allows users to make a decision
-> Information should be faithfully representative: the info is complete, neutral and free
from material error
4 accounting principles/assumptions
1. Economic entity assumption
-> Assumes that every organization is a separate economic unit
2. Cost principle
-> All our assets and liabilities should be recorded in the books for the costs we paid
for them at the actual costs
3. Going concern assumption
-> We assume that the business will continue for the future
4. Monetary unit assumption
-> All our transactions are recorded in a monetary unit (euros, dollars etc.)
LO 3: Describe the accounting equation, and define assets, liabilities and equity
Accounting equation
Assets = liabilities + equity
-> this equation should always be in balance
Assets: everything that an organization owns. Economic resources that are expected to
benefit the business in the future
-> Who pays for these assets?
- Owner and organizations that give money (banks for example)
, lOMoAR cPSD| 11911780
Liabilities: debts that are owed to creditors (buy something now, pay afterwards)
Equity: the owner’s residual claim against the assets of the company.
-> The owner’s claim on the resources increase and decrease as the company engages in
earnings activities
-> Putting money in an organization (owner’s capital)
Owner’s capital – owner’s withdrawals + revenues – expenses
Revenues: economic resources that have been earned by delivering products or services to
customers
Expenses: the costs associated with selling goods or services
Transaction = an special kind of historical event
- It involves the exchange of economic resources
- We must be able to measure the economic impact in monetary units
Prepare financial statements
4 different financial statements:
1. Income statement
-> Shows all the revenues and expenses the business has -> creates loss or income
-> Shows how profitable an organization is
2. Statement of owner’s equity
-> Overview of changes in owner’s capital during the period
3. Balance sheet
-> Reports assets and claims to those assets at a specific point in time
-> The balance sheet follows the accounting equation
4. Statement of cash flows
-> Answers the questions of whether the business generates enough cash to pay its
bills
-> An explanation of what happens with cash
■ Chapter 2: Recording Business Transactions
LO 1: Explain accounts as they relate to the accounting equation and describe common
accounts
What is an account?
-> the detailed record of all increases and asset, liability, equity, revenue or expense during
aspecific period
LO 2: Define debits, credits, and normal account balances using double-entry accounting
and T-accounts
Double entry accounting: transactions always have two impacts on the accounting equation
-> These “double” entries help keep the accounting equation in balance
, lOMoAR cPSD| 11911780
T-account: A T-account is a shortened visual form of the more formal general ledger account
format
-> Increases are shown on one side of the T-account and decreases on the other side
-> The T-account is balanced at the end of the period
Debits = left
Credit = right
Debits and credits are used to record the increases and decreases in T-accounts
-> Any time we put a debit in one account we have to put an equal credit in another account
-> An account with more debits than credits will have a “debit” balance
-> An account with more credits than debits will have a “credit” balance
-> Some accounts will be increased with debits, others with credits
- If an asset increases -> Debit
- If an asset decreases -> Credit
- If a liability/equity increases -> Credit
- If a liability/equity decreases -> Debit
LO 3: Record transactions in a journal and post journal entries to the ledger
Record transactions in a journal and post journal entries to the ledger
Transactions are first recorded using a “journal entry”
The account to be debited is usually written first
Journal entry:
LO 4: Prepare the trial balance and illustrate how to use the trial balance to prepare
financial statements
Trial balance: the primary purpose is to prove the mathematical equality of debits and
credits after posting
-> the amounts come from the individual account balances in the General Ledger
First: prepare the income statement -> by looking at the revenues and expenses
The information for the statement of owner’s equity comes from the trial balance and from
the income statement
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