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This 4 page Class Notes was uploaded by Tala Rafii on Thursday September 1, 2016. The Class Notes belongs to ACCN 2010 at Tulane University taught by Christine Smith in Summer 2015. Since its upload, it has received 38 views. For similar materials see Financial Accounting in Business at Tulane University.
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Date Created: 09/01/16
Financial Accounting Week 1 Bold: key word Green: definition Yellow: important Red: very important à What is Accounting? • Taking into account how much a business has and owes. • A picture of movements within the company. • Keeping score of a company’s financial transactions. • Accounting is the language we use to “tell the story” of the entity to the interested parties. Must be non-biased and done ethically. è It is a “special language” used to communicate financial information about economic entities to interested parties. à Who are the interested parties? Ø Internal users: people in the entity: the CEO, CFO, CIO, employees, executive management, accountants, shareholders. Ø External users: competitors, creditors (want to see if the economic entity is credit worthy), customers, regulatory authorities (the Internal Revenue Service (IRS) and the Securities and Exchange Commission (SEC)), and potential investors. The results of these financial transactions are reported in a set of periodic financial statements. à Why do accountants bother going through this exercise? They share that story because the users (internal and external) share the information and make decisions. à Why are people forced to make decisions? Because resources are scarce and we have to make decisions on how to allocate them. For instance, time is scarce and we have to allocate it wisely. In accounting, there is a set of rules: the GAAP: Generally Accepted Accounting Principles. Accounting is not complicated and is not math! Chapter 1 Accounting is the precise, unbiased, realistic language that captures financial information about an entity (and communicates it) to interested users. à Why do we do this? Since resources are scarce, all users are trying to make decisions on how to allocate resources. à We need to be able to compare stories è they need to have been prepared by a set of rules/standards that everybody shares. In the United States, these rules are referred to as the US GAAP: Generally Accepted Accounting Principles. Financial Accounting Week 1 à A while ago, every country had their own GAAP with substantive differences. However, countries eventually started adopting the same GAAP about two decades ago. Why? Because of the rise of globalization and the multiplication of multinational corporations è there has been a convergence. Nowadays, two different standards exist: Ø US GAAP Ø IFRS: International Financial Reporting Standards (most economies use it) à Many of their standards overlap. However there are some key differences. In this class, we will focus on US GAAP. [In science: we have a hypothesis, assumption] As storytellers, we make a couple of assumptions (there are 4): • The economic entity assumption: We as accountants are going to measure, record and communicate all the information. We are going to do that exercise as if that economic entity is separate from the financial of its owners. The business is treated as a person by itself. à As an accountant, if I open a business, I will not report to my users everything I own, because these expenses won’t be withdrawn form the economic entity. I will only tell the story of the economic entity. A company can hold 3 different forms: sole proprietorship, partnership or corporation. • Monetary unit assumption: We capture and record the entity’s information in terms of a monetary unit. • Time period assumption: The business profit or losses are measured on a timely basis. • Going concern assumption: The business is going to be operated for a non-predefined period, in other words, there is no ending date for business life. • Unnamed assumption: Profit is not bad. It must follow CSR but it is vital. Foundation of Accountingà the Accounting Equation ASSETS= EQUITIES Assets= a future economic benefit. Something that the company has (sometimes intangible) that represents a future economic benefit è an unused cost. Example: - Accounts receivable: we are one of Tulane’s customers and we owe them money. - Physical assets: automobiles, real estate à they help us generate revenue. Also called Property, Plant and Equipment. Financial Accounting Week 1 - Cash: the ultimate asset, gives the most flexibility. à Those assets had a source which gave claims to those assets: Equities= Non-ownersà Liabilities + Ownersà Owner’s equity/Shareholder’s equity = contributed capital+ earned capital ASSETS = EQUITIES Assets - Liabilities = Equities – Liabilities Which can also be written as: Assets – Liabilities = (Liabilities + Owner’s Equity) - Liabilities è Net Assets = Owner’s Equity Owners are entitled to the claims of increased assets because they took the financial risk. If Assets>Liabilities, the owner’s claims are the residual obtained. Financial Accounting Week 1 Additional information not directly related to the chapter: o CSR: Corporate Social Responsibilityà to designate companies. o WileyPlus: We have to clear our cache on the computer. If at the end of Orion we get more than 60%, we get a 10. People usually do Orion before WileyPlus. o Test: 2 parts: -Concepts and theory (objective) -Application of theory o Homework (2 components): Unlimited attempts. At the end of each chapter, do Orion, then WileyPlus. Quiz: One attempt. 48 hours to complete, it is really graded. 30 minutes to complete a Multiple Choice Quiz. à 11 quizzes throughout the semester, professor will take into consideration top 10 scores à will represent 5% of our final grade. o Calculator: 4 function non-programmable calculator. th Test I: Thursday, September 29 Test II: Thursday, November 3 rd Test III: Tuesday, December 6 th th Final: Thursday, December 15 from 1:00pm to 5:00pm December 8 : Status Day: we will get our precumulative average. <60 à F There’s no magic, it’s math!