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.
Tuesday, 8 September 2009
Intermediate Accounting - 11th Edititon
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Kieso Textbook Chapters
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Accounting Principles (Kieso)
Accounting Principles - 8th Edititon
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Powerpoint slides :accounting principles
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Friday, 4 September 2009
Theories & Further Information about Shareholder's Equity
The shareholder's equity is often an important part of the capital that funds the net assets.
The share capital may be made up of both ordinary and preference shares, though preference shares are much less popular these days for tax reasons. However, in the notes to the accounts there may also be a figure for Authorised Share Capital. This may be very different to the Issued Share Capital. The authorised capital is the maximum amount of money that the shareholders have decided that the company can issue in shares and will usually be considerably larger than the issues share capital as the company wants to retain the option of issuing more shares in the future to raise more capital - perhaps to fund an expansion.
The reserves will include retained profit from the past. That is profits that the firm has kept for itself and not issued to shareholders in the form of a dividend. They may also include share premiums. As mentioned in the explanation of shareholder's equity, this is where shares are issued at more than their face value. The face value of the share may be, say £1, but they may be issued at £3.50 because the market has risen in the meantime and the shares are now worth much more. The £1 will be included as part of the issued share capital (see above), but the other £2.50 will be called a share premium. A final part of reserves may be something called revaluations. If the company's assets have risen in value - perhaps because of inflation - this is effectively a source of funds for the shareholders and so also needs to be recorded on the bottom half of the balance sheet. This situation can occur particularly with property companies such as hotel operators where the value of the properties rises with a booming property market.
The shareholder's equity is shown on the balance sheet as part of the balancing figure - the one that matches the net assets. It is therefore a key part of the capital financing of the business.
The share capital may be made up of both ordinary and preference shares, though preference shares are much less popular these days for tax reasons. However, in the notes to the accounts there may also be a figure for Authorised Share Capital. This may be very different to the Issued Share Capital. The authorised capital is the maximum amount of money that the shareholders have decided that the company can issue in shares and will usually be considerably larger than the issues share capital as the company wants to retain the option of issuing more shares in the future to raise more capital - perhaps to fund an expansion.
The reserves will include retained profit from the past. That is profits that the firm has kept for itself and not issued to shareholders in the form of a dividend. They may also include share premiums. As mentioned in the explanation of shareholder's equity, this is where shares are issued at more than their face value. The face value of the share may be, say £1, but they may be issued at £3.50 because the market has risen in the meantime and the shares are now worth much more. The £1 will be included as part of the issued share capital (see above), but the other £2.50 will be called a share premium. A final part of reserves may be something called revaluations. If the company's assets have risen in value - perhaps because of inflation - this is effectively a source of funds for the shareholders and so also needs to be recorded on the bottom half of the balance sheet. This situation can occur particularly with property companies such as hotel operators where the value of the properties rises with a booming property market.
The shareholder's equity is shown on the balance sheet as part of the balancing figure - the one that matches the net assets. It is therefore a key part of the capital financing of the business.
What is Shareholder's Equity?
The shareholder's equity comes in the bottom half of the balance sheet and is part of the overall financing of the business. The shareholder's equity is a part of the overall level of capital that finances the net assets.
As well as the shareholder's equity the net assets may be financed by:
•Retained profit & reserves
•Loans & debentures
There may also be other more detailed sources of capital shown on a balance sheet. These may include the "share premium account". This is where the shares are issued at above their face value. The amount raised from the sale of shares is then split into two - the share capital (the face value of all the shares) and the share premium account (the surplus over and above the face value).
The shareholder's equity may also be known as the equity capital. The reward to the shareholders for investing this money in the business is a share of the profit - a dividend . The amount of the dividend clearly depends on the profitability of the business.
As well as the shareholder's equity the net assets may be financed by:
•Retained profit & reserves
•Loans & debentures
There may also be other more detailed sources of capital shown on a balance sheet. These may include the "share premium account". This is where the shares are issued at above their face value. The amount raised from the sale of shares is then split into two - the share capital (the face value of all the shares) and the share premium account (the surplus over and above the face value).
The shareholder's equity may also be known as the equity capital. The reward to the shareholders for investing this money in the business is a share of the profit - a dividend . The amount of the dividend clearly depends on the profitability of the business.
Theories & Further Information about Dividends Payable
When it's considering how much of its profit to pay in dividends, the company is up against various conflicting interests. The shareholders clearly want a share of the profit in return for their investment in the shares, but they also (unless they're very short-sighted!!) want the company to grow in the future. To grow in the future, the company needs to invest a proportion of the profit. Whatever is invested can't then be paid to shareholders as dividends.
It is the job of the Board of Directors to try to take account of all these conflicting interests and to decide on the level of dividend they are going to recommend is paid. This recommendation is then considered at the Annual General Meeting of the company. The Directors should be in the best position to decide what needs to be re-invested and therefore how much can be spared to be paid out as dividends.
For more detail about how much of its profit a company is paying out in dividends, shareholders or potential investors could look at the DIVIDEND COVER or the DIVIDEND YIELD RATIOS. There is more detail on these in the reported earnings per share and the reported dividend per share pages.
It is the job of the Board of Directors to try to take account of all these conflicting interests and to decide on the level of dividend they are going to recommend is paid. This recommendation is then considered at the Annual General Meeting of the company. The Directors should be in the best position to decide what needs to be re-invested and therefore how much can be spared to be paid out as dividends.
For more detail about how much of its profit a company is paying out in dividends, shareholders or potential investors could look at the DIVIDEND COVER or the DIVIDEND YIELD RATIOS. There is more detail on these in the reported earnings per share and the reported dividend per share pages.
Theories & Further Information about Dividends Payable
When it's considering how much of its profit to pay in dividends, the company is up against various conflicting interests. The shareholders clearly want a share of the profit in return for their investment in the shares, but they also (unless they're very short-sighted!!) want the company to grow in the future. To grow in the future, the company needs to invest a proportion of the profit. Whatever is invested can't then be paid to shareholders as dividends.
It is the job of the Board of Directors to try to take account of all these conflicting interests and to decide on the level of dividend they are going to recommend is paid. This recommendation is then considered at the Annual General Meeting of the company. The Directors should be in the best position to decide what needs to be re-invested and therefore how much can be spared to be paid out as dividends.
For more detail about how much of its profit a company is paying out in dividends, shareholders or potential investors could look at the DIVIDEND COVER or the DIVIDEND YIELD RATIOS. There is more detail on these in the reported earnings per share and the reported dividend per share pages.
It is the job of the Board of Directors to try to take account of all these conflicting interests and to decide on the level of dividend they are going to recommend is paid. This recommendation is then considered at the Annual General Meeting of the company. The Directors should be in the best position to decide what needs to be re-invested and therefore how much can be spared to be paid out as dividends.
For more detail about how much of its profit a company is paying out in dividends, shareholders or potential investors could look at the DIVIDEND COVER or the DIVIDEND YIELD RATIOS. There is more detail on these in the reported earnings per share and the reported dividend per share pages.
What are Dividends Payable?
Any profit that the firm makes belongs to the owners of that firm. They are the shareholders. The amount of the profit that each shareholder should receive depends on how many shares they own. The more shares they own, the larger the proportion of the company they own and therefore the more of the profit they should receive. This share of the profit is known as a dividend and to spread out fairly, the dividend is normally expressed as an amount per share.
The size of the dividend depends on two things. First it depends on the amount of profit that has been made, but secondly it depends on how much of the profit is distributed to the shareholders. Profit is a vital source of funds for investment for a company and so if they were to distribute too much to the shareholders, they would damage their long-term performance. However, at the same time the shareholders are entitled to a share as the reward for the risk they have taken in investing in the company.
The Board of Directors has to balance up these two demands on the total profit, and will then recommend the size of the dividend they think is appropriate. This will then be put to the firm's AGM for the shareholders to vote on.
Profit attributable to shareholders = Dividends paid + Retained profit
For further details about profit, you could look at the section on operating profit or the Financial Ratios section.
The size of the dividend depends on two things. First it depends on the amount of profit that has been made, but secondly it depends on how much of the profit is distributed to the shareholders. Profit is a vital source of funds for investment for a company and so if they were to distribute too much to the shareholders, they would damage their long-term performance. However, at the same time the shareholders are entitled to a share as the reward for the risk they have taken in investing in the company.
The Board of Directors has to balance up these two demands on the total profit, and will then recommend the size of the dividend they think is appropriate. This will then be put to the firm's AGM for the shareholders to vote on.
Profit attributable to shareholders = Dividends paid + Retained profit
For further details about profit, you could look at the section on operating profit or the Financial Ratios section.
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