Accounting Fundamentals Introduction
Accounting Fundamentals Introduction 21027
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This 2 page Class Notes was uploaded by Katie Thedford on Monday October 3, 2016. The Class Notes belongs to 21027 at Fort Lewis College taught by Kaori Takano in Fall 2016. Since its upload, it has received 6 views. For similar materials see Business in BA 110-5H at Fort Lewis College.
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Date Created: 10/03/16
ACCOUNTING FINANCIAL REPORTS FUNDAMENTALS Assumptions: o Separate Economic entity Economic events associated with the business are separate from the owners o Going concern Assumes business will continue for foreseeable future o Stable monetary unit Financial reports are prepared using a stable monetary unit, such as the US dollar o Periodicity Accounting reports are prepared periodically Principles: o Historical Cost Principle: Assets are reported and presented at their original cost and no adjustment is mad for changes in market value o Matching Principle Matching of expenses with revenues in the period incurred and earned o Revenue Recognition Principle Revenue is realized when the good or service is provided or produced o Full Disclosure Principle Full Disclosure of all information about the business entity that is needed by users in understandable form Modifying Conventions: o Materiality Convention Relaxes certain GAAP requirements if the impact is not large enough to influence decisions o CostBenefit Convention Relaxes GAAP requirements if the expected cost of reporting something exceeds the benefits of reporting it o Industry Practices Convention Accepted industry practices should be followed even if they differ from GAAP Financial Reports: o Income Statements: RevenuesExpenses=Net Income o Statement of Retained Earnings: Beginning retained earnings balance + net income – dividends = ending retained earnings balance o Balance Sheet Assets= liabilities + Equity o Statements of Cash flows Cash inflows cash outflows = net change in cash Net change in cash + beginning cash balance= ending cash balance 2
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