Horngren\'s Accounting with MyAccountingLab, Global Edition
An English summary of the subject ''Accounting'' of the study Business Administration at Radboud University Nijmegen. The book where all the information (including sources) comes from is ''Horngren's Accounting'' (10th edition, 2014) and is written by Nobles, Mattison and Matsumura. In the summary,...
Accounting
Bedrijfskunde
Radboud
Universiteit
Nijmegen
Door Denise Drost (2016)
Een samenvatting van het vak ‘’Accounting’’ van de studie Bedrijfskunde op de Radboud
Universiteit in Nijmegen. De informatie binnen de samenvatting (waaronder de bronnen)
zijn afkomstig uit het boek ‘’Horngren’s Accounting van Nobles, Mattison en Matsumura.
13-6-2016
,Chapter 1, Accounting and the business
environment
Why is accounting important?
-Accounting is the information system that measures business activities, processes
the information into reports, and communicates the results to decision makers.
Decision makers: the users of accounting information
-Two major accounting fields:
Financial accounting: focuses on providing information for external decision
makers
Managerial accounting: focuses on providing information for internal decision
makers
-Users
Individuals: manage your money, saving money and affording products
Businesses: set goals, measure progress, make adjustments
Investors: deciding whether a business is a good investment, predict amount
of earned income, analyze performance investment
Creditors: any person or business to whom a business owes money.
Evaluating company’s ability to make the payments
Taxing authorities: calculating income tax
The accounting profession
-Certified public accounts (CPA): licensed professional accountants who serve the
general public.
-Certified management accountants (CMA): certified professionals who specialize
in accounting and financial management knowledge. They typically work for a single
company.
What are the organizations and rules that govern accounting?
Governing organizations
-Financial accounting standards board (FASB): the private organization that
oversees the creation and governance of accounting standards in the United States.
-Securities and exchange commission (SEC): U.S. governmental agency that
oversees the U.S. financial markets.
Generally accepted accounting principles
-Generally accepted accounting principles (GAAP): accounting guidelines,
currently formulated by the FASB (accounting rule book).
-To be useful, information must be relevant and have faithful representation.
The economic entity assumption
-Economic entity assumption: an organization that stands apart as a separate
economic unit
,-Business organizations:
Sole Proprietorship: a business with a single owner
Partnership: a business with two or more owners and not organized as a
corporation
Corporation: a business organized under state law that is a separate legal
entity
Limited-liability company (LLC): a company in which each member is only
liable for his or her own actions
The cost principle
-Cost principle: a principle that states that acquired assets and services should be
recorded at their actual costs.
The going concern assumption
-Going concern assumption: assumes that the entity will remain in operation for the
foreseeable future.
The monetary unit assumption
-Monetary unit assumption: the assumption that requires the items on the financial
statements to be measured in terms of a monetary unit.
International financial reporting standards
-International financial reporting standards (IFRS): a set of global accounting
guidelines, formulated by the IASB.
-International accounting standards board (IASB): the private organization that
oversees the creation and governance of IFRS.
Ethics in accounting and business
-To handle conflicts of interest, audits are required. An audit is an examination of a
company’s financial statements and records.
-Cheating accountants -> Sarbanes-Oxley act (SOX):requires companies to review
internal control and take responsibility for the accuracy and completeness of their
financial reports.
What is the accounting equation?
-Accounting equation: the basic tool of accounting. It measures the resources of
the business (what the business owns or has control of) and the claims to those
resources (what the business owes to creditors and to the owner). Assets = liabilities
+ equity.
Assets: economic resources that are expected to benefit the business in the
future. Something the business owns or has control of (cash, furniture).
Liabilities: debts that are owed to creditors (payable in title).
Equity: the owner’s claim to the assets of the business.
-Equity consist of:
Owner’s capital: owner contributions to a business.
Revenues: amounts earned from delivering goods or services to customers.
Expenses: the cost of selling goods or services.
Owner’s withdrawal: payments of equity to the owner.
,How do you analyze a transaction?
-Transaction: an event that effects the financial position of the business and can be
measured reliably in dollar amounts.
Transaction analysis
-Owner contribution (puts 30 000 into business)
-Purchase of land for cash (20 000)
-Purchase of office supplies on credit (500)
,-Earning of service revenue for cash (provides services for 5500)
-Earning of service revenue on account (performs 3000 of services to customer who
will pay in a month)
-Payment of expenses with cash (2000 for office rent and 1200 for employee
salaries)
-Payment on account/accounts payable (pays 300 to debitor)
-Collection on account/accounts receivable (collects 2000 from debitor)
,-Owner withdrawal of cash (5000) and total
How do you prepare financial statements?
-Financial statements: business documents that are used to communicate
information needed to make business decisions. There are four financial statements:
Income statement: reports the net income (revenues > expenses) or net loss
(expenses > revenues) of the business for a specific period.
Statement of owner’s equity: shows the changes in the owner’s account for
a specific period.
, Balance sheet: reports on the assets, liabilities and owner’s equity of the
business as of a specific date.
Statement of cash flows: reports on a business’s cash receipts and cash
payments for a specific period.
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