Tuesday 17 January 2012
Timing issues
Accountants divide the economic life of a business into artificial time periods
(Time Period Assumption)
- Generally a month, a quarter, or a year.
- Fiscal year vs. calendar year
- Also known as the "Periodicity Assumption"
Accrual- vs. Cash-Basis Accounting
Accrual-Basis Accounting
- Transactions recorded in the periods in which the events occur
- Revenues are recognized when earned, rather than when cash is received.
- Expenses are recognized when incurred, rather than when paid.
Cash-Basis Accounting
- Revenues are recognized when cash is received.
- Expenses are recognized when cash is paid.
- Cash-basis accounting is not in accordance with generally accepted accounting principles (GAAP).
The Ledger
A General Ledger contains the entire group of accounts maintained by a company.
The General Ledger includes all the asset, liability, owner’s equity, revenue and expense accounts.
Double entry
Double-entry accounting system
Each transaction must affect two or more accounts to keep the basic accounting equation in balance.
Recording done by debiting at least one account and crediting another.
DEBITS must equal CREDITSIf Debits are greater than Credits, the account will have a debit balance.
If Credits are greater than Debits, the account will have a credit balance.
Accounting Career Opportunities
Public Accounting
Careers in auditing and taxation serving the general public.
Private Accounting
Careers in industry working in cost accounting, budgeting,
accounting information systems, and taxation.
Opportunities in Government
Careers with the IRS, the FBI, the SEC, and in public
colleges and universities.
Forensic Accounting
Careers with insurance companies and law offices to conduct
investigations into theft and fraud.
Ethics In Financial Reporting
Standards of conduct by which one’s actions are judged as right or wrong, honest or dishonest, fair or not fair, are Ethics.
* Recent financial scandals include: Enron, WorldCom, HealthSouth, AIG, and others.
* Congress passed Sarbanes-Oxley Act of 2002.
* Effective financial reporting depends on sound ethical behavior.
What is Accounting?
The purpose of accounting is to:
identify, record, and communicate the economic events of an organization to
interested users.
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