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ACCOUNTING
- Is an information system that identifies records and communicates the economic
events of an entity to interested users
- Language of business
- Luca Pacioli, Italian Renaissance Mathematician, a close friend and tutor to
Leonardo Da Vinci and a contemporary of Christopher Colombu
- In the 1494 text, Summa de arithmetica, geometria, proportione et
proportionalite, Pacioli described a system to ensure that financial information
was recorded efficiently and effectively
FINANCIAL INFORMATION
CORPORATE GOVERNANCE
AGENCY THEORY
INTERNAL USERS
EXTERNAL USERS
BOOKKEEPING
FINANCIAL ACCOUNTING
- Provides economic and financial information for investors, creditors and other
external users
MANAGEMENT ACCOUNTING
- Provides economic and financial information for managers and other internal
users
ETHICS
SUSTAINABILITY REPORTING
o Social bottom line is an indicator on how the entity deals with issues
such as employee working conditions and safety and security, and the
entitys support and contribution to community services
COST PRINCIPLE
ACTIII-0 | REVIEWER
ASSUMPTIONS
- Requires that only transaction data that can be expressed in terms of money be
included in the accounting records
- Enables accounting to quantify economic events
- Requires that the activities of the entity be kept separate and distinct from the
activities of its owner and all other economic entities
PROPRIETORSHIP
SOLE PROPRIETORSHIP
PARTNERSHIP
COMPANY
- A business organized as a separate legal entity under the corporations law and
having ownership divided into transferable shares
- Shareholders may transfer all or part of their shares to other investors at any time
-
ASSETS
LIABILITIES
OWNERS EQUITY
o Investments by owner
- Asses the owner puts into the business
- Credit balance
o Income
- Gross increase in owners equity resulting from activities entered into
for the purpose of earning profit
- Credit balance
Revenue arises in the course of the ordinary activities of a
business ; it is simply a component of income
Gains include gains on disposal of non-current assets and
unrealized gains on revaluing assets
o Drawings
- total withdrawals for each accounting period
- Debit balance
o Expenses
- The cost of assets consumed or services used in the process of
earning income
- Debit balance
Profit revenue exceeds expenses
Loss expenses exceeds revenue
TRANSACTIONS
FINANCIAL STATEMENTS
ACTIII-0 | REVIEWER
ACCOUNT
T ACCOUNT
1. Debit
- Indicates left
- Dr (debere)
- Debtor
2. Credit
- Indicates right
- Cr (credere)
- Creditor
Double-entry system
JOURNALS
Contributions:
GENERAL JOURNAL
JOURNALIZING
- Date of transaction
- Accounts and amounts to be debited and credited
- A brief explanation of the transaction
LEDGER
GENERAL LEDGER
POSTING
CHART OF ACCOUNTS
- List of accounts and their respective account numbers that identify their
location in the ledger
TRIAL BALANCE
CORRECTING ERRORS
1. If the error is 1, 10, 100 or 1000, re-add the trial balance columns and recalculate
the account balances.
2. If the error is divisible by 2, scan the trial balance to see whether a balance equal
to half the error has been entered in the wrong column.
3. If the error is divisible by 9, retrace the account balances on the trial balance to
see whether they have been incorrectly copied from the ledger
4. If the error is not divisible by 2 or 9 (for example 365), scan the ledger to see
whether an account balance of 365 has been omitted from the trial balance, and
scan the journal to see whether a 365 posting has been omitted
- The division of the economic life of the business into artificial time periods
ACTIII-0 | REVIEWER
Accrual- Basis
Cash Basis
*The two principles can be applied once the economic life of a business has been
divided into artificial time periods
PREPAYMENTS
1. Prepaid expense
- Expenses paid in cash and recorded as assets before they are used or
consumed
ACTIII-0 | REVIEWER
- Asset and liability are overstated while expense and revenue are understated
before adjustment
CASH XXX
Depreciation
- Is the allocation of the cost of an asset to expense over its useful life in
a rational and systematic manner and represents the future economic
benefit that has been used in the period
- Need for depreciation adjustment: to recognize the cost that has been
expired (expense) during the period and to report the unexpired cost
(asset) at the end of the period
- (cost salvage value) / estimated useful life
Carrying Amount
- The difference between the cost of any depreciable asset and its
related accumulated depreciation
Fair value
- The price at which the asset could be sold in the market place
2. Unearned revenue
- Cash received and recorded as liabilities before revenue is earned
CASH XXX
ACCRUALS
1. Accrued expense expenses incurred but not yet paid in cash or recorded
2. Accrued revenue revenue earned but not yet received in cash or recorded
__________RECEIVABLE XXX
WORKSHEET
- A working tool
- Is not a permanent accounting record
- A device used to make it easier to prepare adjusting entries
STATEMENT POST
ADJUSTMENT ADJUSTE
TRIAL INCOME OF CLOSING CLOSIN
ACCOUN S D TRIAL
BALANCE STATEMENT FINANCIAL ENTRIES G
T TITLES BALANCE
POSTITION ENTRIES
DR CR DR CR DR CR DR CR DR CR DR CR DR CR
XXX
XXX
Closing Entries
- Formally recognize in the ledger the transfer of profit (or loss) and owners
drawings to owners capital
- Results are shown in the statement of changes in equity
- Lists permanent accounts and their balances after closing entries have been
journalized and posted
- To prove the equality of the permanent account balances that are carried
forward into the next accounting period
REVERSING ENTRIES
CORRECTING ENTRIES
- An avoidable step
- Errors should be corrected as soon as they are discovered by journalizing
and posting correcting entries
- If the accounting records are free of errors, no correcting entries are
necessary
CURRENT ASSETS
- Are cash and other resources that are reasonably expected to be realized in
cash or sold or consumed in the business within 1 year of the reporting date
or the businesss operating cycle, whichever is longer
OPERATING CYCLE
FINANCIAL ASSETS
INVESTMENT PROPERTY
INTANGIBLE ASSETS
ACTIII-0 | REVIEWER
CURRENT LIABILITIES
- Listed first in the liabilities and owners equity section of the statement of
financial position
- It expects to settle the liability in its normal operating cycle
- Holds the liability primarily for the purpose of trading
- Due and settled within 12 months after the end of the reporting period
- The entity does not have an unconditional right to defer settlement to the
liability for at least 12 months after the reporting period