Definitions
is an information and measurement system that identifies, records, and communicates an organization’s business activities.
Accounting
Three factors must exist for a person to commit fraud:
Opportunity
Pressure
Rationalization
The business is presumed to continue operating instead of being closed or sold.
Going Concern
1.Recognize revenue when goods or services are provided to customers and
2.at an amount expected to be received from the customer.
Revenue Recognition Principle
Company purchased supplies paying $2,500 cash.
The Accounts involved are:
Supplies (Asset) - Increase
Cash (Asset) - Decrease
Accounting serves many users who can be divided into two groups:
External & Internal
Financial accounting is governed by concepts and rules known as
Generally Accepted Accounting Principles
Transactions and events are expressed in monetary, or money, units.
Monetary Unit Assumption
A company records its expenses incurred to generate the revenue reported.
Matching Principle
Purchased supplies of $7,100 on credit.
Supplies (Assets) Increase
Accounts Payable (Liability) Increase
•Lenders
•External auditors
•Shareholders
•Board of directors
•Regulators
External Users
GAAP aims to make information
Relevant
Reliable
Comparable
A business is accounted for separately from other business entities, including its owner.
Business Entity Assumption
A company reports the details behind financial statements that would impact users’ decisions in the notes to the financial statements
Full Disclosure Principle
Provided consulting services to a customer
and received $4,200 cash right away.
Cash (asset) - Increase
Revenues (equity) - Increase
•Research and development managers
•Purchasing managers
•Human resource managers
•Marketing managers
•Production managers
Internal Users
The four Accounting Principles
Cost Principle
Matching Principle
Revenue Recognition Principle
Full Disclosure Principle
The life of a company
can be divided into time periods,
such as months and years.
Time Period Assumption
The Accounting Equation
Assets = Liabilities + Owner's Equity
Paid rent of $1,000 and
salaries of $700 to employees.
Cash (asset) = Decrease
Rent expense Increase (equity) decrease
Salaries expense - Increase (equity) Decrease
Remember that the balance in the Expense accounts actually increase.
But, total Equity decreases, because expenses reduce equity.
Beliefs that distinguish right from wrong. They are accepted standards of good and bad behavior.
Ethics
Four Accounting Assumptions
Going Concern
Monetary Unit
Business Entity
Time Period
Accounting information is based on actual cost. Actual cost is considered objective
Cost Principle
Chas Taylor invests $30,000 cash to start a corporation named FastFoward.
The Accounts involved are:
Cash (Asset) - Increase
Common Stock (Equity) - Increase
Provided consulting services of $1,600 and rents facilities for $300 to a customer for credit.
Accounts receivable (asset) - Increase
Consulting Revenues (equity) - Increase
Rental Revenue (equity) - Increase