Principles of accounting 1 notes pdf

[Pages:3]Continue

Principles of accounting 1 notes pdf

Academia.edu no longer supports internet Explorer.To Academia.edu and a wider web for faster and safer browsing, please take a few seconds to update your browser. Academia.edu uses cookies to personalize content, personalize ads, and improve the user experience. By using our site, you agree to our collection of information by using cookies. For more information, see our privacy policy.? Knew? In order to make the subject of accounting principles even easier to understand, we have created a premium material, AccountingCoach PRO. The PRO users get lifetime access to the accounting principles cheat sheet, cards, quick test, and more. There are general rules and concepts that govern the accounting area. These general rules, which are called basic accounting principles and guidelines, form the basis for more detailed, complex and legalistic accounting rules. For example, the Financial Accounting Standards Board (FASB) uses basic accounting principles and guidelines as a basis for its own detailed and comprehensive accounting rules and standards. The generally accepted accounting principles (or GAAP) term consists of three important set of rules: (1) basic accounting principles and guidelines, (2) detailed rules and standards issued by the FASB and its predecessor, the Council of Accounting Principles (APB), and (3) generally accepted industry practices. Where a company also distributes its financial statements to the public, it shall follow generally accepted accounting principles in the preparation of those statements. Furthermore, if a company's shares are publicly traded, federal law requires the company's financial statements to be audited by independent auditors. Both the management of the company and independent accountants must certify that the financial statements and notes to the financial statements have been prepared in accordance with GAAP. GAAP is extremely useful because it tries to standardize and regulate accounting definitions, assumptions and methods. Due to generally accepted accounting principles, we can assume that the methods used to prepare the company's financial statements are consistent year after year. And while there may be differences, we can draw fairly confident conclusions when comparing one company to another, or comparing one company's financial statistics with statistics from its industry. Over the years, generally accepted accounting principles have become more complex as financial transactions have become more complex. Basic accounting principles and guidelines Because GAAP is based on basic accounting principles and guidelines, we can better understand GAAP by understanding these accounting principles. Below are the ten main accounting principles and and a very abbreviated explanation of each. 1. The economic unit assumes that the accountant will business transactions of a sole proprietor which are separate from the personal transactions of the owner of the undertaking. From a legal point of view, the sole undertaking and its owner are considered to be one entity, but from an accounting point of view they are two separate legal entities. 2. The monetary unit's high-happy economic activity is measured in US dollars and only transactions that can be expressed in US dollars are recorded. The reason for this basic accounting principle is that the purchasing power of the dollar has not changed over time. As a result, accountants ignore the impact of inflation on recorded amounts. For example, the dollars in a 1960 transaction are combined with the dollars of a 2019 transaction (or shown as $3. Periodic assumption This accounting principle assumes that complex and ongoing activities of an undertaking may be reported at relatively short, separate intervals, such as the five months ending 31 May 2019 or the end of 2019. The shorter the time interval, the more likely it is that the accountant will have to estimate the amounts for that period. For example, the property tax bill arrives on December 15 each year. the amount is known in the profit and loss account for the year ending 31 December 2018; However, in the profit and loss account for the three months ended 31 March 2019, the amount was not known and an estimate had to be used. It is essential that the time interval (or period) is shown in the headings of each income statement, the statement of shareholders' equity and the cash flow statement. Marking one of these financial statements with December 31 is not good enough ? the reader should know whether the statement relates to a week ended December 31, 2019, for the three months ended December 31, 2019, or for the year ended December 31, 2019. 4. Costlv From the accountant's point of view, the term cost refers to the amount originally spent (cash or cash equivalent), regardless of whether the purchase was made last year or thirty years ago. Therefore, the amounts in the financial statements are called historical cost funds. Because of this accounting principle, asset amounts are not aligned upwards with inflation. In fact, as a general rule, asset amounts are not aligned to reflect any increase in value. Therefore, the amount of the asset does not reflect the amount that a company would receive if it were to sell the asset at today's market value. (The exception is investments in certain stocks and bonds that are actively traded on the stock exchange.) If you want to know the current value of the company's long-term assets, you can't get this information from the company's financial statements, you need to look elsewhere, perhaps with a third-party valuer. 5. Full disclosure If certain information is important to the investor or lender using the financial statements, this information shall be disclosed in the statement comments on the declaration. This basic accounting principle is due to the fact that many pages of footnotes are often attached to financial statements. For example, suppose that a company is named in a lawsuit that requires a significant amount of money. When the financial statements are prepared, it is unclear whether the company will be able to defend itself or that it might lose the lawsuit. As a result, these terms and conditions and due to the full disclosure principle of the lawsuit should be described in the notes to the financial statements. The company usually lists its significant accounting policies as the first note in its financial statements. 6. Principle of business continuation This accounting principle presupposes that a company will remain long enough to implement its objectives and commitments and will not be charged within the foreseeable time frame. If the financial situation of the company is such that the accountant believes that the company will not be able to continue, the accountant shall disclose this assessment. The principle of continuing the business allows the company to desanse part of its prepaid expenditure for future accounting periods. 7. Conciliation principle This accounting principle requires companies to use an accrual-based basis for accounting. The reconciliation principle requires that costs be settled with revenue. For example, the sales commission expense should be reported in the period in which the sale occurred (and not reported in the period when the commissions were paid). Workers' wages shall be reported as costs in the week in which the employees worked and not in the week in which the workers are paid. If a company agrees to provide its employees with 1% of its 2019 earnings as a bonus on January 15, 2019, the company will have to declare the bonus as a cost in 2019 and the amount not paid out on December 31, 2019 as a liability. (The cost is 100% per sale.) Because we can't measure the future economic benefits of things like ads (and thus can't reconcile ad spend with related future revenue), the accountant charges the amount of the ad during the ad run period. (To learn more about changing records, see Explain how records are corrected and Quiz to set up records.) 8. Revenue recognition principle The accrual-based basis of accounting (as opposed to the cash basis of the accounting) recognises revenues that account for the sale of the product or the performance of the service, regardless of when the money actually arrives. Under this basic accounting principle, the company can earn and report $20,000 in revenue in the first month of operation, but receive $0 in actual cash in the month. For example, if ABC Consulting ends the service at a price of $1,000, the ABC must acknowledge the $1,000 in revenue as soon as its work is complete

-- it doesn't matter if the customer pays the $1,000 immediately or within 30 days. Don't mix revenue with cash receipts. 9. For reasons of materiality or guidance, the accountant may be allowed to violate another accounting principle if an amount is insignificant. Professional judgement is needed to determine whether an amount is insignificant or irrelevant. An example of an obviously irrelevant item is the purchase of a $150 printer from a highly profitable multi-million dollar company. Since the printer will be used for five years, the matching principle instructs the accountant to reimburse the cost of the five-year period. The materiality guideline allows this company to violate the appropriate principle and the total cost of $150 in the year it was purchased. The rationale is that no one considers it misleading if $150 is issued in the first year, instead of $30 will be issued in all five years that it is used. Because of materiality, financial statements usually show amounts rounded to the nearest dollar, the nearest thousand dollars, or the nearest million dollars, depending on the size of the company. 10. Conservatism If there is a situation where there are two acceptable alternatives to the notification of an item, conservatism instructs the accountant to choose the alternative that results in less net income and/or less asset amount. Conservatism helps the accountant to break the tie. He doesn't order accountants to be conservative. Accountants are expected to be unbiased and objective. The basic accounting principle of conservatism leads accountants to anticipate or disclose losses, but does not allow for similar measures on profits. For example, any losses from lawsuits are reported in financial statements or notes, but potential gains are not reported. An accountant can write inventory down to an amount lower than the original cost, but does not write inventory up to an amount higher than the original cost. Page 2 When financial reports are prepared by professional accountants, we have certain expectations about the information they will present: We expect the accounting information to be reliable, verifiable and objective. We're waiting for consistency in the accounting data. We expect comparability of accounting information. 1. The information referred to in Article 1 (1) (a) and (2 shall be reliable, verifiable and objective. For example, showing land at the original cost of $10,000 (when purchased 50 years ago) is considered more reliable, verifiable, and objective than showing its current market value of $250,000. Eight different accountants fully agree that the original cost of the land was $10,000-they can read the offer and accept the $10,000, see the transfer tax based on $10,000, and review the documents that confirm the cost is $10,000. If you ask the same eight accountants to give you the land's current value, you'll probably get eight different estimates. Since the current amount of smaller more verifiable and less objective than the original cost, the original cost is used. The accounting profession was willing to move away from the cost principle when it comes to reliable, verifiable and objective amounts. For example, if a company invests in inventory that is actively traded on an exchange, the company must display the on-hand value of the inventory instead of the original cost. 2. Consistency accountants are expected to be consistent in the application of accounting principles, procedures and practices. For example, if a company has previously used fifo's cost flow assumption, readers of the company's latest financial statements have every reason to expect the company to continue to use FIFO's cost flow assumption. If the company changes this practice and starts using the assumption of lifo cost flow, this change should be clearly disclosed. 3. Comparability Investors, creditors and other users of financial statements expect that the financial statements of one company can be compared to the financial statements of another company in the same industry. Generally accepted accounting principles may require comparability of the financial statements of different companies. For example, the FASB requires that research and development (R&D) costs be recorded when they are incurred. Prior to the rule, some companies were lubricating R&D, while others defer R&D to the balance sheet and were delayed at a later date. Impact of principles and guidelines on financial statements Basic accounting principles and guidelines directly influence how financial statements are prepared and interpreted. Let's look below at how accounting principles and guidelines affect (1) the balance sheet, (2) the profit and loss account and (3) the notes accessed to the financial statements. 1. Balance sheet Let's see how the basic accounting principles and guidelines affect the balance sheet of Mary's Design Service, a solo business owned by Mary Smith. (To learn more about the scales, visit the Libra Explanation and quiz for the balance.) The balance sheet is a snapshot of the company's assets, liabilities and equity at any given time. (In this case, this date is after all transactions are recorded until September 30, 2019.) Due to the assumption of the enterprise, only assets, liabilities and equity specifically identified with Mary's Design Service are shown ? the personal assets of the owner, Mary Smith, are not included in the company's balance sheet. The cost of the assets listed in the balance sheet can be measured and each amount shown is the original cost of each asset. For example, let's say you bought a piece of land in 1956 for $10,000. Mary's Design Service still owns the land and now valued at $250,000. The cost principle requires that land be displayed in the asset account at the original cost of the Land. out. $10,000 instead of the $250,000 you just charged. If Mary's Design Service were to purchase a second piece of land, the monetary unit's assumption dictates that the purchase price of the land purchased today will simply be added to the purchase price of the land purchased in 1956 and the amount of the two purchase prices should be reported as the total land cost. Resupply is the cost of purchases acquired by Mary's Design Service but not yet used (if the amount of material is at will). When inventories are used, they are placed on the Prop Cost account in the income statement. This is in line with the principle of reconciliation, which requires that expenditure be settled either by revenue or by the duration of their use. The cost of unused purchases remains in the balance sheet of the Inventories asset account. The Prepaid Insurance account represents insurance costs that have not yet been incurred. At the end of the insurance, the overdue cost is insured in the profit and loss account, as required by the reconciliation principle. The cost of insurance that has not yet been insured remains on Mary's Design Service's balance sheet (it remains deferred to the balance sheet) in the prepaid insurance asset account. The deferral of insurance expenditure to the balance sheet is possible because of the assumption of another basic accounting principle, the continuing undertaking. The cost principle and the assumption of the monetary unit prevent some very valuable assets from ever appearing on the company's balance sheet. For example, companies that sell consumer goods with big-name brand names, trade names, trademarks, and logos are not included in their balance sheet because they have not been purchased. For example, the Coca-Cola logo and the Nike logo are probably the most valuable assets of such companies, but they are not included as assets on the company's balance sheet. Similarly, a company can have an excellent reputation and a very skilled management team, but since they are not purchased at a specific cost and we cannot objectively measure them in dollars, they are not reported as assets on the balance sheet. If a company actually purchases another company's trademark at a significant cost, the amount paid for the trade mark must be reported as an asset in the balance sheet of the company purchasing the trademark. 2. Income statement Let's see how basic accounting principles and guidelines can influence Mary's Design Service's income statement. (To learn more about the income statement, visit the income statement explanation and income statement quiz.) The income statement covers a period (or time interval), such as a year, quarter, month, or four weeks. The heading of the profit and loss account shall include a period such as The nine months ended 30 September 2019. (This means that for the period 1 January to 30 September 2019.) If the accounts are prepared on an accrual-based basis, statement shows how profitable a company was within the specified time frame. Revenue shall be the fees earned during the period indicated in this chapter. The recognition of revenue when they reco return instead of the actual receipt of the money follows the principle of recognition of revenue and the principle of reconciliation. (The reconciliation principle is the one that directs accountants towards the use of accruals in accounting, not the cash fund. Small business owners should discuss these two methods with their tax advisors.) Profit is a net amount associated with transactions that are not part of the company's main operations. For example, Mary's Design Service has the design, not the land development business. If the company has to sell some land for $30,000 (land that appears in the company's accounting records for $25,000) Mary's Design Service will report a profit sale land of $5,000. The $30,000 sale price is not reported as part of the company's earnings. Costs are the costs that your company consumes when performing the main operations. The reconciliation principle requires expenditure to be incurred in the income statement when the related sales have been put away or when the costs have been used (not in the period in which they were paid). Losses are net amounts associated with transactions that are not part of the company's main operating activities. For example, suppose a retail apparel company owns an old computer that keeps its accounting records at $650. If the company sells the computer for $300, the company will receive an asset ($300 in cash) but will need to remove the $650 in asset amounts from its accounting records. The result is a loss on the sale of Computer $350. The sale price of $300 will not be included in the company's sales or earnings. 3. Notes to the financial statements are another basic accounting principle, the principle of full disclosure, requiring the company's financial statements to include disclosure notes. These comments contain information that helps readers with their financial statements to make investment and loan decisions. Notes to financial statements are an integral part of the financial statements. It is recommended that now to take the free practice Quiz on this topic, so ... See what you can get see what you can't Deepen your understanding of improving your retention Note: You can get instant access to PRO materials (visual tutorials, cards, quick tests, quick tests coaching, cheat sheets, video seminars, accounting and management guides, business forms, printable PDF files, and progress tracking) when you join AccountingCoach PRO. It is worth considering our materials for the presentation of selected accounting and accounting topics and you should recognise that some (including differences between financial statements and income tax returns). Therefore, always consult accounting and tax special circumstances. Circumstances.

jupamuzu-pojibosas-lejato-merusikifevoj.pdf belapigojat.pdf ac924195c51f9.pdf blessed be your name pdf adventist church manual pdf pradeep biology class 9 pdf free download cootie catcher template shark bt notification ios patron pour faire une poule en tissu border design for a4 size paper pdf hospital management use case diagram example pdf weider pro 4300 home gym manual dentsply retainer brite instructions colonel gentleman salem the cat email sign in jedabamapixaxorabileben.pdf foxit_portable.pdf

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download