الاثنين، 15 فبراير، 2016

Summarization chapter 1 -Accounting in action- kieso 2015




What Is Accounting?
Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users.


















You should understand that the accounting process includes the bookkeeping function. Bookkeeping usually involves only the recording of economic events. It is therefore just one part of the accounting process. In total, accounting involves the entire process of identifying, recording, and communicating economic events .

Who Uses Accounting Data ؟
The  financial information that users need depends upon the kinds of decisions they make. 
There are two broad groups of users of financial information: 
1- internal users  


2-external users.

Generally Accepted Accounting Principles
The accounting profession has developed standards that are generally accepted
and universally practiced. This common set of standards is called generally
accepted accounting principles (GAAP). These standards indicate how to
report economic events.
Measurement Principles:
-HISTORICAL COST PRINCIPLE
The historical cost principle (or cost principle) dictates that companies record assets at their cost
-FAIR VALUE PRINCIPLE
The fair value principle states that assets and liabilities should be reported at
fair value (the price received to sell an asset or settle a liability). Fair value information
may be more useful than historical cost for certain types of assets and
liabilities. For example, certain investment securities are reported at fair value
because market price information is usually readily available for these types of
assets. In determining which measurement principle to use, companies weigh
the factual nature of cost fi gures versus the relevance of fair value. In general,
most companies choose to use cost. Only in situations where assets are actively
traded, such as investment securities, do companies apply the fair value principle
extensively.

Assumptions
MONETARY UNIT ASSUMPTION
The monetary unit assumption requires that companies include in the accounting
records only transaction data that can be expressed in money terms.
ECONOMIC ENTITY ASSUMPTION
An economic entity can be any organization or unit in society that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities

The Basic Accounting Equation:
We can express the relationship of assets, liabilities, and owner’s equity as anequation

Assets:
assets are resources a business owns. The business uses its assets in carrying out such activities as production and sales. The common characteristic possessed by all assets is the capacity to provide future services or benefi ts. In a business, that service potential or future economic benefit eventually results in cash inflows (receipts).
Liabilities
Liabilities are claims against assets—that is, existing debts and obligations. Businesses of all sizes usually borrow money and purchase merchandise on credit. These economic activities result in payables of various sorts:
Owner’s Equity
The ownership claim on total assets is owner’s equity. It is equal to total assets
minus total liabilities. Here is why: The assets of a business are claimed by either
creditors or owners. To fi nd out what belongs to owners, we subtract the creditors’
claims (the liabilities) from assets. The remainder is the owner’s claim on the
assets—the owner’s equity. Since the claims of creditors must be paid before
ownership claims, owner’s equity is often referred to as residual equity
the law requires that creditor claims be paid before ownership claims
INCREASES IN OWNER’S EQUITY
In a proprietorship, owner’s investments and revenues increase owner’s equity.
INVESTMENTS BY OWNER Investments by owner are the assets the owner puts
into the business. These investments increase owner’s equity. They are recorded in a
category called owner’s capital.
REVENUES Revenues are the gross increase in owner’s equity resulting from
business activities entered into for the purpose of earning income.
DECREASES IN OWNER’S EQUITY
In a proprietorship, owner’s drawings and expenses decrease owner’s equity
DRAWINGS An owner may withdraw cash or other assets for personal use. We
use a separate classifi cation called drawings to determine the total withdrawals
for each accounting period. Drawings decrease owner’s equity. They are recorded
in a category called owner’s drawings.
EXPENSES Expenses are the cost of assets consumed or services used in the process
of earning revenue. They are decreases in owner’s equity that result from
operating the business.
Using the Accounting Equation :
Transactions (business transactions) are a business’s economic events recorded by accountants

Each transaction must have a dual effect on the accounting equation. For
example, if an asset is increased, there must be a corresponding (1) decrease in
another asset, (2) increase in a specific liability, or (3) increase in owner’s equity.
Two or more items could be affected. For example, as one asset is increased
$10,000, another asset could decrease $6,000 and a liability could increase $4,000.
Any change in a liability or ownership claim is subject to similar analysis

Financial Statements
Companies prepare four financial statements from the summarized accounting data:
1. An income statement presents the revenues and expenses and resulting net
income or net loss for a specific period of time.
2. An owner’s equity statement summarizes the changes in owner’s equity for a specifi c period of time.
3. A balance sheet reports the assets, liabilities, and owner’s equity at a specific date.
4. A statement of cash flows summarizes information about the cash in flows (receipts) and out flows (payments) for a specifi c period of time.
**These statements provide relevant fi nancial data for internal and external users.


Note that the statements shown in Illustration 1-9 are interrelated:
1. Net income of $2,750 on the income statement is added to the beginning
balance of owner’s capital in the owner’s equity statement.
2. Owner’s capital of $16,450 at the end of the reporting period shown in the
owner’s equity statement is reported on the balance sheet.
3. Cash of $8,050 on the balance sheet is reported on the statement of cash flows



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مصطلحات هامة خلال الوحده




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IFRS DEFENATIONS
Assets. A resource controlled by the entity as a result of past events and from which future
economic benefi ts are expected to fl ow to the entity.
Liabilities. A present obligation of the entity arising from past events, the settlement of
which is expected to result in an outfl ow from the entity of resources embodying economic
benefi ts. Liabilities may be legally enforceable via a contract or law, but need not be, i.e.,
they can arise due to normal business practice or customs.
Equity. A residual interest in the assets of the entity after deducting all its liabilities.
Income. Increases in economic benefi ts that result in increases in equity (other than those
related to contributions from shareholders). Income includes both revenues (resulting from
ordinary activities) and gains.
Expenses. Decreases in economic benefi ts that result in decreases in equity (other than
those related to distributions to shareholders). Expenses includes losses that are not the
result of ordinary activities.





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