Summary for the accounting course in IBM by Nico Deprez. Summary is based on the powerpoint and covers all chapters needed for the exam. Does not include all excersises.
Summary Accounting
Table of Contents
Chapter 1: Accounting in action........................................................................................................................................ 3
1. Financial reporting .................................................................................................................................................... 3
1.1 Financial reporting .............................................................................................................................................. 3
2. (Consolidated) Financial statements......................................................................................................................... 3
2.1 What is in the (consolidated) financial statements ............................................................................................ 3
2.2 Statement of profit or loss .................................................................................................................................. 4
2.3 Statement of financial position ........................................................................................................................... 4
2.4 Example ............................................................................................................................................................... 5
2.5 Boundaries of financial statements .................................................................................................................... 5
2.6 Characteristics of financial statements : ............................................................................................................. 6
2.7 Financial reporting ethics .................................................................................................................................... 6
3. Financial accounting.................................................................................................................................................. 6
3.1 Accounting principles .......................................................................................................................................... 6
3.2 Accounting equation ........................................................................................................................................... 7
4. The accounting cycle ........................................................................................................................................... 7
4.1 Analyse business transactions ............................................................................................................................ 7
Chapter 2: The recording process ..................................................................................................................................... 8
1. The recording process ............................................................................................................................................... 8
1.1 Double-entry system ........................................................................................................................................... 8
1.2 Value added tax (VAT)......................................................................................................................................... 9
2. Running example ................................................................................................................................................. 9
2.1 Step 1: Analyse the transactions ....................................................................................................................... 10
2.2 Step 2: Direct change on the statement ........................................................................................................... 10
2.3 Step 3: Use a journal ......................................................................................................................................... 10
2.4 Step 4: T-Accounts ............................................................................................................................................ 11
2.5 Trail balance ...................................................................................................................................................... 12
3. Conclusion ............................................................................................................................................................... 13
3.1 To get it right! ................................................................................................................................................... 13
Chapter 3: Adjusting Accounts ........................................................................................................................................ 14
1. Adjusting entries ..................................................................................................................................................... 14
1.1 Accounting timeframes ..................................................................................................................................... 14
1.2 Definition........................................................................................................................................................... 14
1.3 Accrual / cash basis ........................................................................................................................................... 14
1.4 Deferrals & Accruals .......................................................................................................................................... 15
1.5 FX (foreign exchange) Translation .................................................................................................................... 15
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, 1.6 Depreciation & Amortization ............................................................................................................................ 15
1.7 Adjusted trial balance ....................................................................................................................................... 16
Chapter 4: Closing the Accounts ..................................................................................................................................... 16
1. Financial statements ............................................................................................................................................... 16
1.1 What is it? ......................................................................................................................................................... 16
2. Current / Non-current / Liquidity order statements............................................................................................... 17
2.1 Liquidity ............................................................................................................................................................. 17
2.2 (Non-)Current Assets / Liabilities ...................................................................................................................... 17
2.3 Intangible assets................................................................................................................................................ 18
2.4 Property, plant and equipment ........................................................................................................................ 19
3. Correcting entries .............................................................................................................................................. 21
3.1 What? ................................................................................................................................................................ 21
3.2 Examples ........................................................................................................................................................... 21
4. Closing entries ......................................................................................................................................................... 22
4.1 What? ................................................................................................................................................................ 22
Chapter 5: Companies with inventory ............................................................................................................................ 23
1. Service company ..................................................................................................................................................... 23
1.1 Reporting a service company ............................................................................................................................ 23
2. Merchandise company............................................................................................................................................ 24
2.1 What is it? ......................................................................................................................................................... 24
2.2 Inventory ........................................................................................................................................................... 24
2.3 Returns, Allowances and Discounts .................................................................................................................. 25
2.4 Net realisable value........................................................................................................................................... 25
2.5 Sales discounts .................................................................................................................................................. 25
3. Comprehensive income statement ......................................................................................................................... 26
3.1 What is it? ......................................................................................................................................................... 26
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,Chapter 1: Accounting in action
1. Financial reporting
1.1 Financial reporting
• Provide information about financial position, financial performance and cash flows
• Report towards all stakeholders
o Financial performance
o Business strategy
o Sustainability
o Risk management
o Corporate governance
o (Consolidated) financial statements
o Other information
• Information published in financial report consulted by different groups of users
o External users?
o (Potential) investors - equity holders, granting loans, purchasing debt securities issued
o Suppliers
o Competitors
o Trade union/employees
o Government
o Customers
o Students ☺
o …
• Internal users?
o Management
o Finance
o Marketing
o Human Resources
o …
• External & internal users: looking at financial reporting from a specific perspective!
o e.g. historical cost (what was the price on purchase?) versus fair value (how much would I get for it
now?)
2. (Consolidated) Financial statements
2.1 What is in the (consolidated) financial statements
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, • Financial statements consists of following elements:
o Statement of profit or loss
o Statement of other comprehensive income
o Statement of financial position
o Statement of changes in equity
o Statement of cash flows
o Notes
▪ Accounting policies
▪ Judgement & estimate
▪ Disclosures
2.2 Statement of profit or loss
• Expense: decrease in an asset/increase in liability used to generate revenue
o things that you need to pay for
• Income: increase in assets/decrease in liability of an entity during an accounting period
o things that you get money for
• Are expenses equal to income?
o NO. Usually not
▪ If income > expenses, the entity has profit
▪ if income < expenses, the entity has loss
2.3 Statement of financial position
• Asset: economic resource controlled by an entity as a result of past events
o what you do with your money (hold it in cash, buy property or equipment, invest)
• Liability: present obligation of an entity to transfer an economic resource as a result of past events
o money that you have to pay back eventually (loans, credits)
• Equity: residual interest in assets of an entity after deducting all its liabilities
o money that you do not have to pay back: (startup capital, shares, retained earnings)
• Are assets equal to equity + liabilities?
o YES. Always!
▪ Assets are what you do with money
▪ equity and liabilities are where your money comes from
• You cannot spend money that you do not have and vice versa
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