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Samenvatting Boek Accounting
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Samenvatting boek Accounting. Boek gebruikt: financial accounting using IFRS 2nd edition.
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Accounting Samenvatting BoekChapter 1 Introducing Financial Accounting
Demand for accounting information
Accounting can be defined as the process of recording, summarising, and
analysing financial transactions.
- Financial accounting: designed primarily for decision makers outside
of the company.
- Managerial accounting: designed primarily for decision makers
within the company.
Who uses financial accounting information?
Demand for financial accounting information derives from numerous users
including:
- Shareholders and potential shareholders.
Corporation: a form of business organisation that is
characterised by a large number of owners who are not
involved in managing the day-to-day operations of the
company.
A corporation exists as a legal entity that issues shares to its
owners in exchange for cash and, therefore, the owners of a
corporation are referred to as shareholders or stockholders.
Sole proprietorship → has a single owner who typically
manages the daily operations.
Partnership → has two or more owners who are also usually
involved in managing the business.
- Creditors and suppliers.
Most companies borrow money from banks or other lenders →
creditors.
Suppliers use financial information to establish credit sales
terms and to determine their long-term commitment to
supply-chain relationships.
- Managers and directors.
Public traded corporations are required by law to have a board
of directors → directors are elected by shareholders to
represent shareholder interests and oversee management.
- Financial analysts.
- Other users of financial accounting information.
Prospective employees.
Labour unions.
Customers.
Costs and benefits of disclosure
The act of providing financial information to external users is called
disclosure. As with every decision, the benefits of disclosure must be
weighed against the costs of providing the information.
Business activities
Business produce accounting information to help develop strategies,
attract financing, evaluate investment opportunities, manage operations,
and measure performance.
,Accounting Samenvatting Boek
Planning activities
- A company’s goal, and the strategies adopted to reach those goals,
are the product of its planning activities → how the company plans
to do so is the company’s strategy.
Investing activities
- Investing activities consist of acquiring and disposing of the
resources needed to produce and sell a company’s products and
services.
- These resources called assets, provide future benefits to the
company.
Financing activities
- Investments in resources require funding, and financing activities
refer to the methods companies use to fund those investments.
- Liabilities: obligations the company must repay in the future → bank
loan.
- Accounting equation:
Investing = creditor financing + owner financing.
Assets = liabilities + equity.
Operating activities
- Operating activities refer to the production, promotion, and selling of
a company’s products and services.
- Revenues: the increase in equity resulting from the sale of goods
and services to customers.
- Expense: the cost incurred to generate revenue, including the cost
of the goods and services sols to customers as well as the cost of
carrying out other business activities.
- Income (net income) → equals revenues minus expenses, and is the
net increase in equity from the company’s operating activities.
Financial statements
Four financial statements are used to periodically report on a company’s
business activities. These statements are:
- Statement of financial position (balance sheet) → list the company’s
investments and sources of financing using the accounting equation.
- Income statement → reports the results of operations.
- Statement of changes in equity → details changes in owner
financing.
Contributed capital → share capital and contributed surplus.
Retained earnings → cumulative net income or loss, and
deducts dividends.
Other equity.
- Statement of cash flows → details the sources and uses of cash.
Financial statement linkages
- The statement of cash flows links the beginning and the ending cash
in the balance sheet.
, Accounting Samenvatting Boek
- The income statement links the beginning and ending retained
earnings in the statement of changes in equity.
- The statement of changes in equity links the beginning and ending
equity in the balance sheet.
Information beyond financial statements
Important information about a company is communicated to various
decision makers through reports other than financial statements. These
reports include:
- Management discussion and analysis (MD&A).
- Independent auditor report.
- Financial statement notes.
- Regulatory filings, including proxy statements.
Financial reporting environment
Generally accepted accounting principles/practice
- Generally accepted accounting principles/practice (GAAP): a set of
standards and accepted practices, based on underlying principles,
that are designed to guide the preparation of financial statements.
International financial reporting standards
- International Financing Reporting Standards (IFRS) are set by the
International Accounting Standards Board (IASB).
- IFRS are an attempt to achieve a greater degree of commonality in
financial reporting across different countries. IFRS had been adopted
by many countries and jurisdictions.
Analysing financial statements
- Return on equity = net income / average total equity.
- Taken over time, ROE ratios that are over 10% and preferably
increasing suggest the company is earning reasonable returns.
Credit risk analysis
- Solvency refers to the ability of a company to remain in business
and avoid bankruptcy or financial distress → measure: debt-to-equity
(D/E) ratio = total liabilities / total equity.
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