Accounting_Outline2 - ACCOUNTING OUTLINE I THE ACCOUNTING...

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ACCOUNTING OUTLINE I. THE ACCOUNTING MODEL 1. Introduction: The Nature & Purpose of Accounting 1. financial statemt a. purpose - to provide info that helps people make decisions 1. people - mrgs, creditors, investors, potential shareholders, e-es 2. types of info - cash inflows & outflows to party using info (amt, timing, risk), other incidental benefits/costs cash generating ability of co. 3. decisions - predict, evaluate, compare a. internal - made by acctg unit specific b. external - made about acctg unit general b. procedure - follow GAAP 1. have to select events to record a. importance is ownership of rights to use property 2. have to describe 3. have to communicate decide how to record & where 2. Accounting Categories: Assets & Equities 1. accounting categories a. asset - legal right to utilize economic resource that produces a positive effect on co. future cash flows 1. acctg assets are only those that arise from acctg events - see below 2. economic resource - that which when utilized can be expected to produce an incremental benefit 3. characteristics - quantity, time, risk dimensions a. discrete or continuous - can only use once or more than once b. finite or infinite - life-span of asset c. current or noncurrent - when asset can be used prepaid services receivable d. monetary or nonmonetary - cash or noncash cash category e. tangible or intangible inventory category b. equities - responsibility to transfer economic resources to others 1. liabilities - well-defined (time & amt) responsibility 2. ownership equity - not well-defined (time & amt) responsibility a. contains retained earnings 3. characteristics a. discrete or continuous b. current or noncurrent payables c. monetary or nonmonetary d. known or estimable c. recorded acctg events 1. performance of agreemt by either party is recorded by both a. examples - acquisition, utilization, & provision of cash, goods & services 2. any event that alters rights/responsibilities previously recognized a. not events that lead to change in value b. examples - 10 yrs lease, purchase of machine w/limited useful life 2 firms w/identical economic assets can have different accounting assets 2 firms w/identical legal obligations can have different accounting liabilities d. how recorded - double entry method 1. every event has 2 effects a. only 4 possible effects - assets (A), responsibility (R) by undesirable (U), desirable (D) A R , A R , A A , R R doesn’t exist - A R , A R 1
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ACCOUNTING OUTLINE b. where only 1 effect, accountant makes up increase or decrease in residual equity (residual net-assets, assets less liabilities less contributed capital, retained earnings) 2. every event can only 1 of 2 categories - asset, equities 3. both effects quantified by same # 4. one effect is desirable & other isn’t single entry system also exists - ie, check-bk 3. Accounting Numbers 1. use preferred or independent quantification a. definition - when thing speaks for itself, event contains measuremt b. purpose to quantify only actual or virtually certain cash flows 1.
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