Fundamental Accounting Principles

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Author:
lizbeth5499
ID:
182398
Filename:
Fundamental Accounting Principles
Updated:
2012-11-07 22:13:57
Tags:
Accounting
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Description:
Accounting
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  1. purpose of accounting
    • identifies buisnesses activities
    • records transaction in chronological order
    • communicates buisness activities to prepare reports
  2. Users of Financial Statements are..
    External and Internal (managerials)
  3. Examples of External Users
    • shareholders (investors)
    • lenders
    • customers
    • suppliers
    • regulators
    • banks
  4. Example of Internal Users
    • officers
    • managers
    • internal auditors
    • sale staff
    • budget officer
    • comptrollers
  5. GAAP
    Generally Accepted Accounting Principles
  6. Generally Accepted Accounting Principles
    GAAP- are the concept and rules of accounting
  7. SEC
    Securities and Exchange Commision
  8. Securities and Exchange Commision
    SEC- legal authority to set GAAP
  9. FASB
    Financial Accounting Standards Board
  10. Financial Accounting Standards Board
    FASB- private sector that sets broad and specific principles
  11. IASB
    International Accounting Standard Board
  12. International Accounting Standard Board
    independent group with members of different countries
  13. IFRS
    International Financual Reporting Standards
  14. International Financual Reporting Standards
    IFRS- preffered accounting practices
  15. Accounting Assumptions (4)
    • Going Concern
    • Monetery Unit
    • Time Period
    • Buisness Entity
  16. Going Concern Assumption
    acccounting information is based on busness will continue to produce
  17. Monetary Unit Assumption
    transaction expressed in dollar values
  18. Time Period Assumption
    the life of a buisness is divided into time periods
  19. Buisness Entity Assumption
    seperate information about each buisness is neccesary for good decisions
  20. sole proprietorship
    only one owner, unlimited liability (if you go in debt you have to pay it)
  21. partnership
    • buisness own by two or more ppl. profit is shared and reported on income taxes togethter
    • unlimited liability
  22. LLP
    limited liability partners
  23. LLC
    limited liability compny
  24. Accounting
    • system that
    • -identifies
    • -records
    • -communicates
    • information about buisness activities
  25. Assets
    what you own
  26. ASSETS = LIABILITIES + EQUITY
    • ASSETS - DR
    • LIABILITIES- CR
    • OWNERS EQUITY- CR
  27. LIABILITY
    what you owe

    (payable)
  28. GAAP regulates
    Assets, Liabilities, and Owner's Equity
  29. Balance Sheet Equation/ Income Statement
    A=L+OE/ R-E=NI(NL)

    • Revenue- CR
    • Expense- DR
  30. Asset Accounts (DR)
    • Cash
    • Account Receivable
    • Note Receivable
    • Prepaid Accounts
    • Supplies
    • Equipment
    • Buildings
  31. Liabilities Accounts (CR)
    • Acount Payable
    • Note Payable
    • Unearned Revenue
    • Accrued Liabilities
  32. Equity Accounts
    • Owner's Capital
    • Withdrawals
    • Revunue
    • Expenses
  33. Income Statemnt
    reports revenue earned less the expenses incured by a buisness over period of time
  34. Statement of Owner's Equity
    how equity changes over the reporting period
  35. Balance Sheet
    show's company's financual position at a specific point
  36. Accounting Period
    • Fiscal Year
    • Calendar Year
    • Natural Buisness Year
  37. Revenue Recognition Principle
    the principle prescribing that reveue is recognized when earned
  38. cost principle
    acounting information is based on on actual cost
  39. Matching Principle
    prescribes that a company records the expenses it incurred to generate the revenue reported
  40. Net Income
    Amount earned after subtracting all expenses necessary for and matched with sales for a peiod
  41. (unearned) deffered revenue
    cash received in advance for providing products and services

    liabilities- after you accept the cash you owe the service
  42. Accrued Expenses
    refers to cost that are incurred in a period but are both unpaid and unrecorded

    ex- salaries, rent, interest, and taxes
  43. Acrrued Revenue
    refers to revenue earned in a period that are both unrecorded and not yet received in cash

    ex- tech that bills only after the job is done
  44. Four step closing process What account you close??
    • close income statement credit balances
    • close income statement debit balances
    • close income summary account
    • close withdrawal account
  45. income summary
    temporary account that contains a credit for the sum of all revenues and a debit for the sum of all expenses
  46. post-closing trial balance
    is a list of permanent accounts and their balanes from the ledger after closing entries have been journalized and posted
  47. operating cycle
    is the time span from when cash is used to acquire goods and services
  48. Why do you close accounts??
    is an important step at the end of an accounting period after financial statement have been completed.
  49. Closing Process
    • 1. identify accounts for closing
    • 2. record and post the closing enties
    • 3. prepare a post-closing trial balance
  50. Merchandise
    goods
  51. Cost of Good Sold
    expenses of buying and preparing the merchandise (cost of sales)
  52. Inventory Accounting System (2)
    • Perpetual Inventory System
    • Periodic Iventory System
  53. Perpetual Inventory System
    continually updated accounting records for merchandising transaction
  54. Periodic Inventory System
    updates accouting records for merchandise transaction only at the end of a period
  55. Sales Discount
    cash discount
  56. FOB
    • Free On Board
    • determains who pays tranportation costs and insurance cost
    • seller or buyer
    • FOB destination- seller is responsible for paying shipping
    • FOB shipping Point- buyer accepts responsibility

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