This document summarizes all the main key points of the book I used in my first year at Maastricht University. This is therefore ideal to get the key concepts of accounting and be familiar with and attain a certain level in accounting.
Accounting and
Financial reporting
Full summary 2020
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,Contents
Chapter 1: Accounting in action .................................................................................................... 5
Accounting Activities and Users.......................................................................................................... 5
Who uses accounting data? ................................................................................................................ 5
The Building Blocks of Accounting ...................................................................................................... 6
The Accounting Equation .................................................................................................................... 7
Analyzing Business Transactions ......................................................................................................... 8
Financial Statements ........................................................................................................................... 8
Career Opportunities in Accounting ................................................................................................... 8
Chapter 2: The recording process ............................................................................................... 10
Accounts, Debits and Credits ............................................................................................................ 10
The recording processes ................................................................................................................... 10
The Ledger and Posting ..................................................................................................................... 10
The trial balance................................................................................................................................ 11
Summary of recording the transactions ........................................................................................... 11
Chapter 3: Adjusting the Accounts .............................................................................................. 12
Accrual-Basis Accounting and Adjusting Entries ............................................................................... 12
Adjusting Entries for Deferrals .......................................................................................................... 14
Adjusting Entries for Accruals ........................................................................................................... 15
Adjusted trial balance and financial statements .............................................................................. 16
Alternative treatments of Deferrals (Appendix 3A) .......................................................................... 16
Financial reporting concepts (Appendix 3B) ..................................................................................... 17
Chapter 4: Completing the Accounting Cycle ............................................................................... 19
The worksheet .................................................................................................................................. 19
Closing the Books .............................................................................................................................. 19
Accounting cycle ............................................................................................................................... 21
Classified statement of financial position ......................................................................................... 22
Chapter 5: Accounting for Merchandise Operations .................................................................... 24
Merchandising Operations and Inventory Systems .......................................................................... 24
Chapter 6: Inventories................................................................................................................ 26
Classifying and Determining Inventory ............................................................................................. 26
Inventory Methods and Financial Effects ......................................................................................... 27
Effects of Inventory Errors ................................................................................................................ 29
Inventory Statement Presentation and Analysis .............................................................................. 30
Inventory Cost flow Methods in Perpetual Inventory Systems ........................................................ 30
Estimating inventories ...................................................................................................................... 31
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, LIFO Inventory method ..................................................................................................................... 31
Chapter 8: Accounting for Receivables ........................................................................................ 32
Recognition of Accounts Receivables ............................................................................................... 32
Valuation and Disposition of Accounts Receivables ......................................................................... 32
Notes receivables .............................................................................................................................. 34
Presentation and Analysis ................................................................................................................. 35
Companies should identify in the statement of financial position or in the notes to the financial
statements each of the major types of receivables. Short-term receivables appear in the current
assets section in the financial statement position. Short-term investments appear after short-term
receivables because these investments are more liquid. Companies report both the gross number
of receivables and the allowance for doubtful accounts.................................................................. 35
Chapter 9: Plant Assets, Natural Resources, and Intangible Assets ............................................... 36
Plant Asset Expenditures .................................................................................................................. 36
Depreciation Methods ...................................................................................................................... 37
Plant Asset Disposal .......................................................................................................................... 40
Natural Resources and Intangible Assets.......................................................................................... 41
Statement presentation and Analysis ............................................................................................... 42
Exchange of Plant Assets .................................................................................................................. 43
Chapter 10: current liabilities ..................................................................................................... 44
Accounting for Current liabilities ................................................................................................ 44
Reporting and Analyzing Current Liabilities ...................................................................................... 46
Chapter 11: Non-Current liabilities ............................................................................................. 48
Accounting for Non-Current Liabilities ............................................................................................. 48
Reporting and Analyzing Non-Current Liabilities .............................................................................. 48
Chapter 12: Corporations- Organization, Share, Transactions, and Equity .................................... 50
The Corporate Form of Organization ................................................................................................ 50
Accounting for Share Transactions ................................................................................................... 54
Dividends and Splits .......................................................................................................................... 55
Reporting and Analyzing Equity ........................................................................................................ 58
Statement of Changes in Equity ........................................................................................................ 58
Appendix 12B: Book value- Another per share Amount................................................................... 58
Chapter 14: Statement of Cash Flows ......................................................................................... 59
Statement of Cash Flows: Usefulness and Format ........................................................................... 59
Preparing the Statement of Cash Flows- Indirect method ............................................................... 60
Using Cash flows to Evaluate a Company ......................................................................................... 63
Statement of Cash Flows- Direct Method ......................................................................................... 63
Statement of cash flows- T-account approach ................................................................................. 65
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, Chapter 15: Financial Analysis- The Big Picture............................................................................ 66
Basics of Financial Statement Analysis ............................................................................................. 66
Ratio analysis .................................................................................................................................... 67
Sustainable income ........................................................................................................................... 69
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