Summary financial management, accounting principles chapter 1 and 2. amsib.
Needles, powers et al. hogeschool van amsterdam, hva
samenvatting finance,
hoofdstuk 1 en 2
Lo1
Accounting: information systems that measures, processes, and communicates financial
information about a business.
Economic entity: unit that exists independently, such as business, hospital or a governmental
body.
Data about business activity are the input to accounting system, and useful for the decision
makers is the output.
External decision makers use Financial accounting to evaluate how well a business achieved
its goals (financial statements).
Bookkeeping: process of recording financial transaction and keeping financial records.
(mostly done by computers)
Management information systems (MIS): consist of the interconnected subsystems, including
accounting, that provide the information needed to run a business.
Internal decision makers use information provided by managerial accounting about
operating, investing and financing activities.
Business transactions: economic events that affect a business’ financial position. (transaction
can be a purchase sale, payment, collection or loan)
Also: losses from fire or theft.
Money measure: business transaction recorded in terms of money.
Exchange rate: value of one currency in another.
Separate entity: a business organization, distinct from not only its creditors but also from its
owners. Should have a set of financial records and these should only refer to its own affairs.
Forms of business organizations:
Sole proprietorships: owned by one, profits and losses are for that person and that person is
liable for all its obligations.
Partnership: kind of same as sole proprietorship but then by more than one person.
Corporation: business unit chartered by the state and legally separate from its owners.
(stockholders)
Stockholders: do not directly control the business, they do elect a board of directors to run
the corporation.
Stockholders enjoy limited liability, risk of amount of loss of what they paid for the shares.
Lo2
Financial positions: refers to a company’s economic health. (cash, buildings and the claims
against those resources at a time)
Economic resources= creditors’ equities+ owners’ equity SAME = assets: = liabilities +
owners’ equity.
Assets: resources that are expected to benefit the company,
, Liabilities: a business’ obligations to pay, transfer or provide in the future.
Owners’ equity: the claims by the owner of a business to the assets.
OE= assets – liabilities.
OE is affected by: withdrawals (assets that the owner takes out of the business) and owners’
investments (assets the owner puts into the business).
Revenues and expenses are the increases and decreases in owners’ equity that result from
owning a business.
Revenue > expenses: difference net income
Expenses > revenue: difference net loss.
Lo3
Income statement: summarizes revenue earned and expenses by a business over an
accounting period.
First search for all revenues and expenses
2 list revenues (on the right)
3 list expenses (on the left)
4 total expenses (on the right)
5 net income (right)
Statement of owners’ equity: changes in owners’ equity over an accounting period.
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