Concepts of Accounting

8/13/2019 Concepts of Accounting

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Using AccountingInformation


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Accounting Information System

Resources and procedures in a

business


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business that change economic

data


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business that change economic

data into financial information


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Users of Accounting Information

Owners

Lenders Labor Organizations

Customers

Society groups

Government Regulatory Agencies


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Entity Concept

Any organization unit for which we

gather and process


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Entity Concept


gather and process financial and

economic data


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Entity Concept


gather and process financial and

economic data for the purpose of

decision making


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Types of Ownership

Single proprietorship

Partnership

Corporation


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Financial Statements

Balance Sheet

Income Statement

Statement of Cash Flows


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Balance Sheet

Summarizes assets, liabilities, and

owners equities as of a specific

moment in time

Assets - economic resources or items

of value a business owns

Liabilities - claims against the assets

by nonowners

Owners equity - claims against the

assets b owners


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Basic Accounting Equation

Assets = Liabilities + Owners Equity


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Income Statement

Presents the results of operations

for a period of time

Revenues - inflow of assets from

performing services or selling goods

Expenses - use of assets or

incurrence of liabilities when earning

revenues


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Statement of Cash Flows

Presents the reasons why cash on

the balance sheet changed from

one date to another

Presents cash flows from

Operating activities Investing activities

Financing activities


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Published Annual Reports

Letter to stockholders

Managements discussion and

analysis

Financial statements and notes

The report of the independentaccountant


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Analyzing Information

Common-size statement

Express each item as a percent of the

total for that statement

Balance sheet - total assets

Income statement - total revenues


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Balance Sheet Analysis

Are total assets higher or lower?

What is percent change in total

assets?

Is the percent of total liabilities to

total liabilities plus owners equityincreasing or decreasing?


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Income Statement Analysis

Are revenues higher or lower?

What is the precentage change in

total revenues?

Is the percentage of total expenses

to total revenues increasing ordecreasing?


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Integrative Analysis

Is the business operating efficiently

by using the least amount of asset

investment to generate a given

level of total revenues?

Calculate Total Asset Turnover Total revenues

divided by

Average total assets


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Concepts of Accounting

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