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Accounting BA1
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Accounting25/10/2022 – College 1
Lecture 1: Bookkeeping
Fundamental principles of bookkeeping
- The company is assumed to be an independent economic entity, separate from its
owners.
- The company can therefore owe money to its owners.
- This makes ‘double entry bookkeeping possible’.
Venician bookkeeping
Memorial – journaal – grootboek (general ledger)
Types of general ledger accounts
Assets = activa, eigen bezittingen. What the company owns.
Liabilities = vreemd vermogen, schulden. What the company owes to others than the owners
of the company.
Equity = eigen vermogen, verschuldigd aan de eigenaren van het bedrijf.
- Share capital (aandelen)
- Retained earings (ingehouden winst, nog niet uitgekeerd aan de aandeelhouder)
- Other reserves (voorzichtigheid)
Revenues = increases in owners’ wealth due to sales
Expenses = decreases in owners’ wealth due to use of resources.
Accounting equations
Since the company is a separate economic entity:
- What the company owns = what the company owes to non-owners and owners.
- Assets = liabilities + equity
This can be rearranged as: equity = assets – liabilities
- Equity is what remains for owners after everyone else claimed their share of assets.
Since revenue and expenses reflect changes in shareholder wealth:
- Equity end of year = equity start of year + revenues – expenses +/- other changes.
- Other changes include for example: newly issued shares (+), dividends (-).
Equity = share capital + retained earning + other reserves
Debit and Credit
Debit = left
Credit = right
Journal
= in the journal, we record the effect of transactions or events on general ledger accounts.
,Financial statements
Financial reporting environment
Accounting standards:
Generally accepted accounting principles
- Many countries have their own
International financial reporting standards
- Applied internationally by listed companies (except US)
Provide rules for how to account for transactions and events
Auditors (controlerende accountants):
- Big four: Deloitte, EY, KPMG, PwC
- Second tier: Baker Tilly, BDO, Grant Thorthon, Marzars
Give an opinion whether the financial statements comply to the rules
Regulator:
- Supervise companies and auditors
- Netherlands: Autoriteit Financiële Markten
- US: Securities Exchange Committee
Give fines to companies and firms that do not stick to the rules.
Purpose of financial statements today (jaarrekening)
Verwachtingen/verantwoording/jaarrekening
1. Show financial position: what does the company own and owe?
2. Accountability towards shareholders and debt investors (eg banks): did management
generate sufficient profits and cash?
3. Accountability towards stakeholders: how well does the company serve the interests
of employees, suppliers, customers, governments, and society at large?
4. Insight in value creation: provide useful information to determine how much the
business is worth if it would be sold.
5. Use all this information in management decision-making.
Primary financial statements (jaarrekening)
- Cash flow statement
- Income statement (winst en verliesrekening)
- Balance sheet (balans)
- Statement of changes in equity (verandering in eigen
vermogen)
The profit and loss statement - Income statement
- How much profit for shareholders did you make on the
sales transactions you completed in a certain period?
- Makes certain assumptions about when a sale is
completed.
- Makes certain assumptions about which costs belong to
which sales.
, Accrual accounting
- Recognizing cash flows in the period in which they belong.
- Niet per se naar het tijdstip van de kasstroom kijken maar wanneer je het gebruikt.
Types of income and expense
Operating:
- Revenu
- Costs of goods sold
- Salaries
- Depreciation
- Selling expense
- General and administrative expenses
Financing:
- Interest on bank loans
- Interest from saving accounts
Tax:
- Corporate income tax.
Note: dividend paid to shareholders is not an expense. It is a distribution of your profit to the
shareholders.
The balance sheet
- What you own and what you have
- But shouldn’t be taken too literally. It’s in an economic sense
- Assets = what you own
- Liabilities = obligations to pay
- Equity = how much money the shareholders can take out of the company
Two purposes:
1. Show financial position: what does the company own and how fast can this be
converted into cash to pay obligations.
2. Parking lot for the income statement.
01/11/2022 – college 2
Liabilities & Equity
Vertalingen:
Equity = eigen vermogen
Liabilities = vreemd vermogen
Assets = activa
Revenue = omzet
Expenses = kosten
Profit = winst
General ledger = grootboek
Account = grootboekrekening
Journal entry = journaalpost
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