best revision notes Summary of Introduction To Accounting for Revision Notes
Accounting Summary
Summary of course lectures
Vrije Universiteit Amsterdam
International Business Administration
Accounting
Summary of Introduction To Accounting for Revision Notes
Introduction to Accounting (University of Exeter)
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Introduction to Accounting Revision Notes
Syllabus Brief definition
Definition of accounting The observing, recording and analyzing of a firms financial information in order to inform and adviser users when
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making decisions
The types of accounting Two types of accounting:
• Managerial
• Financial
Managerial accounting One of the two types of accounting, it is less formal than financial accounting, used for internal purposes they
observe record and present any data that they deem relevant in helping manager make decisions, it can be a
mixture of both quantitative and qualitative data and can be presented whenever appropriate, in whatever form is
most appropriate. There are no checks on whether the information is accurate and truthful only the managers
discretion.
Financial accounting The second type of accounting is financial accounting this is the observing, recording and presenting of a firm
financial records for the primary benefit of external users. The information is presented formally in statements
such as the balance sheet and income statement usually once a year. The information included in these
documents is quantitative and is expected to be accurate and truthful, if it isn’t it could result in sanctions for the
business.
The Qualities of accounting There are 4 main qualities of accounting:
• Understandable
• Relevant
• Reliable
• Comparative
The Users in accounting The main users in accounting (the groups of people that accounting decisions effect)
• Suppliers
• Lenders *
• Owners*
• The Public
• Employees
• Managers
• Customers
Which are the most important of the users
Some critics of accounting Agent theory, historical value and limitations of it evaluation and measure of quality and non financial data
The Balance sheet One of the 3 main financial statement the balance sheet records a firm’s assets and liabilities and owners interest
it purpose is to show the position of a business financial state at a given point in time.
Assets These are resources of the business that have been acquired through past activity and are expected in the future
to result in financial benefit to the business in the form of cash inflows. They can be categorized into two forms
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current and non current assets.
Current assets These are resources of the firm that are expected to be retrieved within 12 months (with in the financial
year/period) Examples of these are cash in hand, cash at the bank, stock and receivables.
Non-current These are resources of the business that a firm cannot retrieve with in the next 12 months. They are normally less
liquid investments, instead made with the bigger picture/longer term in mind. These can be categorized in to two
assets types tangible and intangible.
These are non current assets that are investments in a physical piece of capital that can be used by the business
in production. Examples of these could be building or land, machinery and plant
Tangible non-current These are non current assets that are not physical investments instead they are rights or royalties bought to give
assets value to the business and example of a non tangible non-current asset could be good will.
These are obligations of a firm that have been acquired through past activities and are expected to result in cash
Intangible non-current outflows to the firm in the future. These Liabilities can be categorized into current and non-current liabilities.
assets These are normally a source of equity to the firm.
Liabilities These are obligations to the firm that do not need to be repaid with in the next 12 months (financial year)
examples of these could be long term loans and debentures.
These are examples of obligations to the firm that need to be re paid within the next 12 months/financial year an
Non-current liabilities example of these could be, bank over drafts,
When it cannot be certain that a liability will result in a negative outflow or can not be measured reliably then it is
Current liabilities recorded as a contingent Liability this is done for the purpose of prudence.
This is the Current assets-current liabilities
Contingent liabilities The balance sheet equation = A-L=OI (assets-liabilities=owners interest) however this equation can be
rearranged in many different ways.
Working Capital The entity theory is that, firms are separate entities to their owner whether that be De Facto (principle like sol
The balance sheet trader and partnerships) or De Jure which is by law. The theory is that entities have equity and debt that is equal
to liabilities.
equation The Entity theory This can be calculated by taking total liabilities away from the total assets, it is what the owners have and in a
company this then could be used to pay dividends or reinvested into the form.
Sole traders record the change in owners interest, to calculate you do the following:
Owners interest Owners interest at the start + any investment from owners- any money taken by owners + profits – losses.
This idea links the balance sheet to other concepts such as the income statement.
Change in owners interest It means that Asset – Liabilities = Owners interest + Profit-expenses+ investment- withdrawal of fund
Used to measure the performance this is revenue – expenses
This is the money made from the activity of the business
Owners interest equations Revenue increases leads to an increase in OI – These are sources of funds
Profit These of the cost of producing the goods and services of a business they can
Revenues be:
• Cost of sales
Expenses • Administrative expensive
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