1. General Topics 1.1 Generally Accepted Accounting Principles - - PowerPoint PPT Presentation

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1. General Topics 1.1 Generally Accepted Accounting Principles - - PowerPoint PPT Presentation

Oct 14, 2023 44 likes •1.62k views

1. General Topics 1.1 Generally Accepted Accounting Principles (GAAP) 1.2 Rules of Double- Entry Accounting/ Transaction Analysis/ Accounting Equation 1.3 The Accounting Cycle 1.4 Business Ethics 1.5 Purpose of, Presentation of, and

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  • 1. General Topics
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1.1 Generally Accepted Accounting Principles (GAAP) 1.2 Rules of Double- Entry Accounting/ Transaction Analysis/ Accounting Equation 1.3 The Accounting Cycle

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1.4 Business Ethics 1.5 Purpose of, Presentation of, and Relationships Between Financial Statements 1.6 Forms of Business

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1.1 Generally Accepted Accounting Principles (GAAP)

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  • (GAAP) are a set of

principles where they are a set of rules considered vital in the realm of Accounting

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  • GAAP were created

by the Financial Accounting Standards Board (FASB)

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  • GAAP contain

specific facts that must be adhered to, and they include:

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  • 1. Transactions get

recorded twice

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  • 2. Financial

statements report on the business entity

  • nly
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  • 3. Debts are paid

within one year, or

  • ne business cycle,

whichever is longer

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  • GAAP contains

Principles:

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  • Conservative

Principle:

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  • Going-Concern

Principle:

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  • Historical Cost

Principle:

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  • Objectivity

Principle:

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  • Stable Monetary

Unit Principle:

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1.1.1 Generally Accepted Accounting Principles (GAAP): Summary

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GAAP standards created by the Financial Accounting Standards Board (FASB) REMEMBER- FASB:

  • Governing body
  • Not gov’t. entity
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GAAP: Stresses essential characteristics of accounting, which initiate regulations

  • the identification, measurement, and

communication of financial information, about;

  • economic business-oriented entities, to;
  • interested parties.
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GAAP’s Primary Concern: Financial Statement Regulation

  • Balance Sheet
  • Income Statement
  • Statement of Cash Flows
  • Statement of Owners’ or Stockholders’ Equity
  • Note Disclosures
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What is the purpose of information presented in notes to the financial statements?

  • To provide disclosure required by generally

accepted accounting principles.

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Summary of Financial Reporting: Information to help users with capital allocation decisions

  • Who are the Users of info?
  • Investors, creditors, and other users
  • Capital Allocation
  • The process of determining how and at

what cost money is allocated among competing interests

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GAAP Standard Setting: Summary

  • WHO: Parties Involved in Standard Setting
  • Four primary parties
  • Securities and Exchange Commission (SEC)
  • American Institute of Certified Public Accountants

(AICPA)

  • Financial Accounting Standards Board (FASB)
  • Government Accounting Standards Board (GASB)
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SEC (Profile)

  • Accounting and reporting for public

companies

  • Enforcement Authority for the Government in

this area

  • Encouraged private standard-setting body
  • SEC requires public companies to adhere to

GAAP, and performs a lot of Oversight

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Summary of Issues in Financial Reporting

  • Standard Setting in a Political Environment
  • SEC, IRS other Agencies ALL have a vested

interest

  • Expectation Gap
  • What the public thinks accountants should

do vs. what accountants think they can do.

  • Sarbanes-Oxley Act (2002)
  • (SOX): a system that auditors must test and

evaluate

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  • Ethics in the Environment of Financial

Accounting

  • frequently encounter ethical dilemmas;

doing right thing is not always easy or

  • bvious
  • GAAP does not always provide an answer
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Summary OF (3 Components of) : GAAP Principles

  • 1. Transactions get recorded twice
  • 2. Financial statements report on the business

entity only

  • 3. Debts are paid within one year, or one

business cycle, whichever is longer; Business Cycles do not always last one year

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  • GAAP’s Primary Principles:
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Conservative Principle:

  • Resolving financial statement

uncertainty in least favorable way

  • Anticipates future losses, not gains
  • Understates net assets/net income
  • Allows companies to play it safe
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  • Going-Concern Principle:

financial statements are to assume that businesses will last indefinitely;

  • THIS IS DONE in order to

fulfill:

  • Obligations
  • Commitments
  • Objectives
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Objectivity Principle: Business Transactions are recorded using best

  • bjective evidence
  • Organizational financial statements

be based on solid evidence

  • Prevent any accounting department
  • f a business from documenting

slanted information, based on bias

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1.2 Rules of Double-Entry Accounting/Transaction Analysis Accounting Equation

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1.2.1 Rules for Double- Entry Accounting 1.2.2 Rules of Transaction Analysis 1.2.3 Rules of the Accounting Equation

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1.2.1 Rules for Double-Entry Accounting

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  • Double-Entry

accounting is a principle requiring that transactions gets recorded twice.

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  • Therefore equal

debits and credits are made in accounts for all transactions.

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  • This principle of

accounting includes factors which need to be monitored, such as:

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  • Where the money

comes from, and;

  • Where the money is

going, and why

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  • Thus, the total

debits will always equal the total credits in order for the accounting equation will always stay in balance.

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1.2.2 Rules of Transaction Analysis

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  • This concept is an

examination of where transactions are identified, recorded, and summarized

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  • The Transaction

Analysis is conducted in order to prepare financial statements for the accounting data received, and maintained

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  • For any business,

an analysis of transactions must display two things:

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  • Clear and concise:
  • 1. increases, and;
  • 2. decreases within

the statement

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  • Any increases or

decreases from business transactions should display where the assets, liabilities, and owner’s equity are balanced

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1.2.3 Rules of the Accounting Equation

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  • The Accounting

Equation are balanced calculations, to include three components:

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  • Assets
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  • Liabilities
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  • Owner’s Equity
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  • There are three (3)

ways to demonstrate the accounting equation in real- time

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  • Traditional

examples of the equation are as follows:

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  • Assets= Liabilities +

Owner’s Equity, or;

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  • Owner’s Equity=

Assets – Liabilities,

  • r;
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  • Liabilities= Asset –

Owner’s Equity

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1.3 The Accounting Cycle

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  • The accounting

cycle is the process

  • f recording and

processing the accounting events

  • f a business.
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  • It begins when

transactions occur

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  • The Accounting

Cycle also begins with the recording

  • f the transactions
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  • The Accounting

Cycle is continual throughout the Business Operating Cycle.

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  • The natural period
  • f time occurs

before certain business activities tend to repeat

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  • Transactions are

recorded using entries, based on receipts, in recognition of a sale.

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  • After businesses

post entries to accounts, a balance sheet is prepared

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  • Hence, the Balance

Sheet ensures the total debits equals the total credits in the financial records.

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  • Adjustments are
  • ften made,

followed by creating financial statements.

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  • Financial

Statements allow for the following:

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  • Revenues and

expenses are closed at the end of the accounting period.

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  • Net income

transferred into earnings, as the business prepares to ensure debits and credits match

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1.4 Business Ethics

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  • Ethics are

internalized standards considered to be the legality of any action performed

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  • Ethics also initiate

Internal Controls

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  • Internal Controls

are not only allow for monitoring, but also allow for an increase in profit.

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  • Several primary

internal controls for Accounting:

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  • Sarbanes-Oxley Act

(SOX): a system that auditors must test and evaluate

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  • Code of ethics:
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  • Law:
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  • Full disclosure:
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  • Conflicts of interest:
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1.5 Purpose of, Presentation of, and Relationships Between Financial Statements

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1.5.1 Purpose of Financial Statements 1.5.2 Presentation of Financial Statements 1.5.3 Relationships Between Financial Statements

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1.5.1 Purpose of Financial Statements

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  • The objective of

financial statements:

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  • Financial

Statements also exhibit changes in financial position of an business

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  • Financial

Statements are useful for making economic decisions

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  • Income statement:
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  • Statement of
  • wner’s equity:
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1.5.2 Presentation of Financial Statements

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  • Financial

Statements may be best demonstrated and displayed by:

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  • The specific rules

used to govern the creation of the statements themselves.

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  • These rules include:
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  • All financial

statements have a three-line heading

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  • The first line is the

business name.

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  • The second is the

name of the report.

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  • The third is the date,
  • r period of time
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  • Financial

statements start all computations by placing numbers in the column farthest to the right

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  • Next, to make a sub-

calculation, move

  • ne column to the

left;

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  • Draw a single line

under the last number in a calculation;

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  • Put a double

underline under final numbers

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  • Accountants place

the results of a business calculation in one of three different places on the statement

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  • Accountants should

use the method that allows for the clearest communication.

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1.5.3 Relationships Between Financial Statements

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  • Financial

statements, as there are various types, possess many common components

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  • Regardless of the

industry, these components are ever-present and

  • bservable in

accounting.

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  • Financial

Statements for businesses show:

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  • Inventory
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  • Accounts, such as

Income and Expenses

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  • Costs of goods sold
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  • Net Income
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1.6 Forms of Business

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  • Similar to the

concept of existing types of financial statements, businesses themselves vary, as well.

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  • Business variations

are categorized based primarily on

  • wnership.
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  • Sole Proprietor:
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  • Partnership:
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  • Corporation:
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  • Corporation

management is very regulated and structured

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  • Regulations and

structure are good for handling up to thousands of individual stockholders.

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