BU8101 Week 1
BU8101 Week 1 BU8101
Popular in Accounting: A User Perspective
Popular in Business Administration
This 4 page Class Notes was uploaded by zzhong004 Notetaker on Monday February 29, 2016. The Class Notes belongs to BU8101 at Nanyang Technological University taught by in Summer 2015. Since its upload, it has received 278 views. For similar materials see Accounting: A User Perspective in Business Administration at Nanyang Technological University.
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Date Created: 02/29/16
• WHAT’S BUSINESS AND ITS GOALS A business is an economic entity that aims to sell goods and services to customers at prices that will provide an adequate return to its owners. There are two goals of business: 1. Profitability A primary goal of a successful business is to create value for its owners through delivering products that satisfy customers’ desires at a reasonable price. 2. Liquidity a business must have sufficient cash to meet its current and future obligations. Value Added = Sales Price – Total Cost of Resources Consumed to Produce the Goods or Service. • CATEGORIZE BUSINESS ACTIVITIES v Financing Activities Financing activities occur when owner or creditors provide resources to the business or when the business transfers resources to owners or creditors. v Investing Activities Investing activities involve the acquisition or disposal of long-‐term resources used by a business. v Operating Activities Operating activities are those activities necessary to acquire and sell goods and services • TYPES OF BUSINESS ORGANIZATION Ø Sole proprietorship o Generally owned by one person o Often small service-‐type business o Owner receives all profits, bears all losses, and is personally liable for all debts. Ø Partnership o Owned by two or more persons o Often retail and service-‐type businesses o Generally unlimited personal liability o Partnership agreement Ø Corporation o Ownership divided into shares of stock o Separate legal entity organized under company’s act o Limited liability o Professional management • ACCOUNTING REGULATIONS v Generally Accepted Accounting Principles (GAAP) a. Standard rules and practices as a general guide for financial reporting purpose b. Accounting Standard Council prescribes Financial Reporting Standards in Singapore. v The Companies’ Act Requires companies to issue financial statements to users at specified intervals and to comply with financial reporting standards. ( note: the accounting method a company used most be constant throughout the life of the business) • THE IMPROTANCE OF ACCOUNTING REGULATIONS Ø The Accounting and Corporate Regulatory Authority o Regulates business and the public accountancy profession in Singapore o Enforce and monitors compliance with disclosure Ø Independent Audit o An audit is a detailed examination of a company’s financial report to check for compliance with the Companies’ Act and with Financial Reporting Standards and that the report fairly represents a company’s business activities. • CERTAIN IMPROTANT ACCOUNTING CONCEPTS Ø Financial Statements: § Balance sheet: reports assets, liabilities and owner’s equity as at a specific date. § Income statements: reports revenue and expenses for a period of time. § Owner’s equity statement: reports the change in owner’s equity for a specific period of time § Statements of cash flows: reports sources and uses of cash for a specific period of time. Ø Concepts for accounting process: o Accounting entity: keep business and personal records separate. o Going concern: business will operate into the foreseeable future. (health future development) o Monetary unit: ONLY record transactions denominated in monetary units. o Time period: the economic life of a business can be divided into equal time period (usually one financial year). o Historical cost: assets should be recorded at cost (as the business used resources to purchase the assets) o Full disclosure: any facts that will make a difference of financial statements users should be disclosed. Assets = Liabilities + Owner’s Equity ü Assets: An asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. ü Liability: A liability is a company's legal debt or obligation that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services. ü Owner’s Equity: It represents the owners’ claim to the assets of the business. i.e. owner's equity represents the owner's investment in the business minus the owner's draws or withdrawals from the business plus the net income (or minus the net loss) since the business began. OE = capital stocks + revenue – expense – dividends • RELATIONSHIP AMONG FINANCIAL STATEMENTS LO 7 Relationships Among Financial Statements Time Date at Date at end beginning of Income Statement of period period Revenue - Expenses Net Income Statement of Changes in Equity Balance Sheet Balance Sheet Beginning of equity A = L + OE Issuance of shares A = L + OE Net income - Dividend Ending Equity Statement of Cash Flows Cash Provided (Used) by: Operating Activities Investing Activities Financing Activities + Beginning Cash Balance Ending Cash Balance 1-51 © Lau Yin Kheng Picture credit to Pro Lau Yin Kheng