Principles of Accounting I thru Test 1-1 (1).ppt - ACT 2291...

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ACT 2291Principles of Accounting ISteve Grice, Ph.D., CPABotts Professor of AccountingSchool of AccountancyTroy University
General PointsAccounting profession.Annual report.Internal users.External users.Generally accepted accounting principles(GAAP).Business Types.Proprietorship.Partnership.Corporation.
Basic Accounting Equation(Normal Balances)Assets = Liabilities + Equity(Dr)(Cr)(Cr)Revenues – Expenses = Net Income(Cr)(Dr)
The Accounting CycleJournalizeTransactionsPost toLedgerUnadjustedTrialBalanceAdjustingEntriesAdjustedTrialBalanceFinancialStatementsClosingEntriesPost ClosingTrial Balance
Journalize TransactionsDebits (Dr) must equal Credits (Cr) in alljournal entries.For Example:Dr. Cash$100Cr. Accounts Receivable$100
Statement of Financial Accounting ConceptObjective of financial reporting.Useful to users in decision making.Qualitative characteristics of useful accountinginformation.Relevance (capable of making a difference in adecision).Reliable (faithful representation, complete, neutraland free of error).Usefulness is enhanced when it is comparable,verifiable, timely, and understandable.
Statement of Financial Accounting ConceptElements of financial statements.Definitions that describe basic terms (e.g., assets,liabilities, equity, revenues, and expenses)Operating guidelinesAssumptions, principles, and constraints.
AssumptionsBusiness Entity (Economic Entity)Unit of Measure (Monetary Unit)Time PeriodGoing Concern
PrinciplesRevenue RecognitionPoint of sale.Percentage of completion.Installment.MatchingFull DisclosureCost
ConstraintsMaterialityLikely to influence the decision of areasonably prudent investor.Cost-BenefitOther prior concepts: ConservatismWhen in doubt, choose the method that willleast likely overstate assets and income.
Cost ConceptUnder the cost concept,amounts are initially recordedin the accounting records attheir cost or purchase price.
Unit of Measure ConceptThe monetary unit assumption statesthat only transaction data that can beexpressed in terms of money beincluded in the accounting records.For example, the value of the companypresident is not reported in the financialrecords.
Objectivity ConceptTheobjectivity conceptrequires that theamounts recorded in the accountingrecords be based on objectiveevidence.Only the final agreed-upon amount isobjective enough to be recorded in theaccounting records.
Business Entity ConceptThe economic entity assumption statesthat the activities of the entity be keptseparate and distinct from the activitiesof the owner and of all other economicentities.For example, the activities of IBM can bedistinguished from those of Dell.
Matching ConceptThe matching concept is applied by“matching” the expenses incurredduring a period with the revenue thatthose expenses generated.The excess of the revenue over theexpenses is callednet income, netprofit, orearnings. If expenses exceedrevenue, the excess is anet loss.

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Term
Summer
Professor
LeeDaniel
Tags
Balance Sheet, Revenue, Generally Accepted Accounting Principles, dr cash, Business Types

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