Summary containing all the relevant theory discussed during the course Accounting given in the first year of International Business Administration at the Vrije Universiteit Amsterdam. By learning this summary I personally passed the final exam.
LECTURES
Accounting provides information to summarize all kind of actions, decisions, results,
transactions into figures to steer the business and inform stakeholders.
Specification of content = accounting
Accounting information systems = organization
Standard setters make a rule based on how users of accounting information get the
most relevant and reliable information.
Financial accounting external financial reporting and bookkeeping (for
stakeholders)
Management accounting internal information for decision-making, performance
evaluation, and control.
To discuss:
- Formal relations
- Norms for contents
Balance sheet: overview of the firm’s situation at a point in time
Assets: what the firm owns, what it has done with the funds it received
Liabilities: what the firm owes, where the funds came from. Split into equity (funds
from owners) and other liabilities
Profit and loss statement: the results of a company over a period of time.
Cash flow statement: the flow of money into and out of the company over a period
of time.
Cashflow total = cash in – cash out
Equity is the value for the owners (stockholders, shareholders). So, if you earn
money as a firm, EQUITY increases. This should be visible in higher assets [e.g.,
cash (you received money)] or lower liabilities [e.g., you used profits to repay a loan].
Changes in other assets and liabilities correct for the fact that not all value changes
are identical to cash flow changes!
,The basic relationships:
“Revenues” in the income statement are:
- cash receipts, or
- increases in other assets, or
- decreases in liabilities
Thus, also increase in equity (Credit)
“Expenses” in income statement are:
- cash expenditures, or
- decreases in other assets, or
- increases in liabilities
Thus, also decrease in equity (Debit)
Basic relations including transactions with owners:
Form: name account (debited)
To: name account (credited)
Profit and loss statement provides stakeholders with info on how the firm has
performed during a period!
Assets = liabilities + equity
Actual closing: get overview by following steps
Close assets and liabilities to balance sheet
Close revenues and expenses to P&L
Close P&L to Equity
Close Equity to balance sheet
Trial balance: Overview of all net debits and credits of all accounts.
Way to find errors and get a current overview.
Provide services
Accounts receivable | To: sale revenue
Moment of payment insurance
Prepaid insurance (asset) | To: cash (no P&L effect)
Adjustment at the end of each month for part of the insurance premium
Insurance expense (P&L) | To: prepaid insurance
Depreciation of a machine
Depreciation expense (P&L) | To: Accumulated depreciation (correction on
value of asset of the machine)
, Wages are not yet paid but of course work relates to this period Allocate fraction to
this period
Wages expense (P&L) | To: Wages payable (liability)
Balance sheet:
- Helpful to evaluate liquidity, can the firm pay what it has to pay?
- Rule of thumb < 1 year, held for less than one operating cycle
Four basic questions financial
statement analysis:
- Can the firm meet its short-term
obligations?
- Can the firm meet its long-term
obligations?
- How profitable is the firm? / How
does it make its profits?
- What is the value of a share / the
entire firm?
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller esteegrift. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $6.71. You're not tied to anything after your purchase.
