Week 1 - Basic Accounting Principles

Week 1 - Basic Accounting Principles - WEEK 1 BASIC...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
WEEK 1 – BASIC ACCOUNTING PRINCIPLES Week 1 Topics Topic 1.1 – Introduction Topic 1.2 – The Four Financial Statements Topic 1.3 – Common Transactions: How They Affect the Financial Statements Topic 1.4 – Accrual Basis Accounting (vs. Cash Basis Accounting) Week 1 Learning Outcomes Upon completion of Week 1, you should be able to: Distinguish between financial accounting and managerial accounting . Explain the meaning of Generally Accepted Accounting Principles (GAAP) and identify the principal source of U.S. accounting standards Describe the purpose and composition of each of the four financial statements Analyze and record common business transactions in the appropriate financial statement accounts Explain and apply the revenue recognition and expense recognition rules of accrual basis accounting. Explain the purpose of depreciation in the context of accounting, and how it exemplifies the matching principle Discuss differences among countries in the accounting standards used for financial reporting, and the impact of such differences on comparability of financial information
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
TOPIC 1.1 INTRODUCTION Accounting can be defined as the process of identifying, measuring, and communicating economic information about an entity so that users of the information can make informed judgments and decisions. Financial Accounting vs. Managerial Accounting In the case of financial accounting , the product of the accounting process are the entity’s financial statements – its balance sheet, income statement, and statement of cash flows. The users of the users of the financial statements are external to the entity, such as investors and creditors whose decisions about whether to invest in the entity or lend money or grant credit to the entity are greatly influenced by what the financial statements say about the entity’s profitability, liquidity, and solvency. In order for these external users to have confidence in the reliability of financial statement information, the financial statements must be prepared in accordance with a set of accounting standards, which in the United States are called Generally Accepted Accounting Principles, or GAAP . ( More on GAAP in a moment.) Managerial accounting , on the other hand, produces economic information in the form of management reports for use only by the entity’s internal management personnel, not by external users. Examples of such reports include sales analysis by product and/or location, cost analysis by product, performance reports by department, operating budgets and capital equipment budgets, cash budgets and forecasts. As to which reports are to be produced and in what form, the answer is: “Whatever management needs in order to make sound decisions, as long as the cost of producing the information does not exceed the benefit. There are no standards or “rules” for such internal management reports, other than reasonable accuracy, usefulness and readability.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 27

Week 1 - Basic Accounting Principles - WEEK 1 BASIC...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online