Accounting Week one lecture notes
Accounting Week one lecture notes
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This 5 page Reader was uploaded by Joe Pollock on Wednesday April 16, 2014. The Reader belongs to a course at University of Washington taught by a professor in Fall. Since its upload, it has received 279 views.
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Date Created: 04/16/14
Pollock 1 Lecture 1 Tuesday April 1 Intro Running a Business Income Statementnet income amount earned after costs profit Revenues Expenses U 39amp e exgte o 5 F4 mane Realized Cash Money TO BE collected profit Accrual Accounting Concept transactions are recorded in financial statements when they happen o This means cash doesn39t need to change hands o Objective is to capture the economic substanceprofitsrealized earnings of the business activities o Cash profit Balance Sheet a snapshot of what a company ownsowes Assets cashinventory Liabilities loans payments Stockhoder s Equity retained earnings The above are by no means a comprehensive list they are just there to give you an idea of what goes into each category Accrual allows users to record revenue before cash is received and expenses before cash is paid This results in receivables and payables respectively more on this later Note even if the cash has NOT exchanged hands you STILL record the amount in your balance sheet because you are owed that amount and you assume they will pay you Who regulates how you record your financial statements FASB Financial Accounting Standards Board Pollock 2 Lecture 2 Thursday April 3 Review o Income statement records a period of time Net Income Revenues Expenses o Balance Sheet snapshot Assets Liabilities Stockhoder s Equity 0 Change in cash profit gt money doesn t have to change hands to make a profit because of accrual accounting and promised payments owed to you usinesses H7 i7 iiVi7 i1iiii win Hm if v Q a The singular owner is the same thing as the business Ex Tax returns are the same and are taxed at an individual rate b Drawback w w elilt39irinieiiiflii a More than 1 owner Examples of these are law firms investment corporations etc b Not as simple but ownership can transfer limited liability and taxed at the c Corporate income tax corporation lasts forever not when the owners die Makes it easier to exchange ownership gt a lot easier to buysell parts of the corporation Difference between Sole proprietorshipsPartnerships and Corporations o Corporations have to produce financial statements which increases transparency Standard Setting What is GAAP Generally Accepted Accounting Principles Who Created It FASB gt Financial Accounting Standards Board Who Enforces It SEC gt Securities amp Exchane Commission Don t need to know this but it would aid understanding After the Great Depression congress believed there was a lack of oversight Congress created the SEC to address shady characters trying to raise money for fraudulent corporations However the organization was made up of the people it was supposed to control SEC gt FASB in terms of hierarchy What Was It Like Before GAAP Pollock 3 Less regulation An extreme variety of representations of financial info bigger range of quality Big companies ie railroad coal steel etc were pretty accurate and legit because they had to provide accurate and reliable information to investors What Is The International Analogue to USA s GAAP International Financial Recording Standards gt IFRS i furs To FASB International Accounting Standards Board gt IASB There is a movement of convergence between IFRS and GAAP to create a single set of standards for international use to better compare all companies across borders B IfiI If IIf IfI IHIHIij A Cash Flow gt compares 2 balance sheets and says where cash flows 0 Composed of 3 categories Operating Investing and Financing cash flows Statement of Stockhoder s Equity gt change of stockhoder s equity over a period of time Income Statement gt calculation of net income the economic performance of the company Balance Sheet gt snapshot of Assets owns Liabilities owes Owner s Equity The Balance Sheet First and foremost the balance sheet equation ALE ALWAYS balances Composed of 3 components 1 Xgg j f mj QQj iq r H139lt M 1 apngltwwa lt lt TT Ii II C Ifii V IIIi II ii T iii iv a Can be currentcan be liquidatedconverted to cash within the next year or noncurrentcan be converted into cash beyond 1 year 2 PAM IIIIIIII II II h III II39LIIIII IIII IIII III II T 7 III T to o a Can e current bill must be paid within year or noncurrent beyond a year 3 Juyugus gamut u1lkefLJuzeuMmLux Ianlmuee ahaxaafelumtwwmwmraxewbm gr a Ownership b Two Categories i Contributed Capital how much you put in at the start of the business External Financing ii Retained Earnings what the business produces itself Cumulative net income Internal Financing Example Cases Pollock 4 Accounts Example TA TE Capital Contribution TA TE Pay Divedend TA TL Borrow Money TA TL Pay off account wage payable TA TA Receive Cash buy inventory TL TL Reclassify debt as current TL TE Dividend declared but not paid Note If you don t understand this table yet it is not a problem It will definitely be covered more later in these guides T T T T T T M T l T all ll l T lT T TTTT rT 7 7 Q TTTT T T Assets Lquot bilities Stoc hol er s Equity Each transaction will have a dual effect meaning the equation always balances This is called Double Entry Accounting gt there are always two accounts affected every time something happens o To analyze transactions you need three pieces of information i Affected Accounts ie cash loan payable accounts receivable ii Direction of the effect on the equation iii The amount Pollock 5
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