NOTES ACCG100: Accounting 1A Macquarie University
Table of Contents 1 ROLE OF ACCOUNTING 4 1.1 USERS OF ACCOUNTING INFORMATION 4 1.2 ASSUMPTIONS OF FINANCIAL ACCOUNTING 4 1.3 QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION 4 1.4 STRUCTURE OF BUSINESS ENTITIES 4 1.4.1 SOLE PROPRIETORSHIP/ SOLE TRADER 4 1.4.2 PARTNERSHIP 5 1.4.3 COMPANY/CORPORATION (LIMITED LIABILITY) 5 1.5 ACCOUNTING EQUATION 5 1.5.1 ASSETS 5 1.5.2 LIABILITIES 5 1.5.3 SHAREHOLDERS EQUITY 6 2 FINANCIAL STATEMENTS AND ACCOUNTING ASSUMPTIONS 7 2.1 BALANCE SHEET 7 2.2 INCOME STATEMENT 7 2.3 STATEMENT OF CASH FLOWS 8 3 RECORDING TRANSACTIONS 10 3.1 ACCRUAL ACCOUNTING 10 3.2 CASH ACCOUNTING 10 3.3 ACCOUNTING EQUATION IN DETAIL 10 3.3.1 DOUBLE ENTRY ACCOUNTING 10 3.4 THE ACCOUNTING CYCLE 10 4 ADJUSTING ENTRIES AND PREPARING FINANCIAL STATEMENTS 12 4.1 ACCRUAL ADJUSTMENTS STEP 5 AND 6 12 4.1.1 EXPIRATION OF ASSETS 12 4.1.2 UNEARNED REVENUE 12 4.1.3 ACCRUAL OF UNRECORDED REVENUE 12 4.1.4 ACCRUAL OF UNRECORDED EXPENSES 12 4.2 CONTRA ACCOUNTS 13 4.2.1 ALLOWANCE FOR DOUBTFUL DEBT 13 5 COMPLETING THE ACCOUNTING CYCLE 14 5.1 WORKSHEETS 14 5.2 CLOSING ENTRIES 14 5.3 POST CLOSING TRIAL BALANCE 15 5.4 PREPARE FINANCIAL STATEMENTS 15 5.4.1 BALANCE SHEET 15 5.4.2 INCOME STATEMENT 15 5.4.3 CASH FLOW STATEMENT 16 6 ACCOUNTING SYSTEMS SPECIAL JOURNALS 17 6.1 SALES JOURNAL 17
6.2 PURCHASES JOURNAL 17 6.3 CASH RECEIPTS JOURNAL 17 6.4 CASH PAYMENT JOURNAL 18 7 CASH MANAGEMENT AND CONTROL 19 7.1 PETTY CASH FUND 19 7.2 BANK RECONCILIATION 19 8 ACCOUNTING FOR RETAILING AND INVENTORY 22 8.1 PERPETUAL INVENTORY SYSTEM 22 8.1.1 PURCHASES 22 8.1.2 PURCHASE RETURNS AND ALLOWANCES 22 8.1.3 SALES 22 8.1.4 SALES RETURNS OR ALLOWANCES 22 8.2 PERIODIC INVENTORY CONTROL SYSTEM 23 8.2.1 PURCHASES 23 8.2.2 PURCHASE RETURNS AND ALLOWANCES 23 8.2.3 SALES 23 8.2.4 SALES RETURNS AND ALLOWANCES 23 8.3 MEASURING INVENTORY 23 8.3.1 FIFO 23 8.3.2 LIFO 23 8.3.3 WEIGHTED AVERAGE COST METHOD 23 9 ACCOUNTING FOR RECEIVABLES 25 9.1 ALLOWANCE FOR DOUBTFUL DEBT 25 10 ACCOUNTING FOR DEPRECIATION 26 10.1 DEPRECIATION 26 10.2 METHODS OF DEPRECIATION: 26 10.3 SUBSEQUENT COSTS 26 10.3.1 REPAIRS AND MAINTENANCE COSTS EXPENSED 26 10.4 IMPROVEMENTS AND MODIFICATIONS 27 11 ETHICS 28 11.1 ETHICS 28 11.2 SIX PILLARS OF CHARACTER 28 11.2.1 ETHICAL THEORIES 28
1 Role of Accounting 1.1 Users of Accounting Information Users of accounting information are the people that depend on and use the financial information (provided by financial statements) to make economic decisions. 1.2 Assumptions of Financial Accounting Assumptions are the tools and principles that we assume accountant will always use when presenting and creating financial statements Relevant assumptions: Accrual Accounting Measure the performance and position of a company by recognising economic events regardless of when cash transactions occur. Going Concern A business will continue to operate for the foreseeable future Monetary Unit - Measured in common denominator Accounting Period Discrete equal periods Historical Cost Cost at initial acquisition 1.3 Qualitative Characteristics of Accounting Information Understandability Relevance Reliability Materiality Fair representation (represent what really existed/happened) Neutrality (freedom from bias) Substance over form (reflects the economic reality) Prudence (caution in estimates) Completeness (material info not omitted, not misleading) Comparability 1.4 Structure of Business Entities 1.4.1 Sole Proprietorship/ Sole trader The owner is called the proprietor Separate accounting entity Not separate legal entity
Not separate taxable entity Unlimited liability - owner personally liable for debts of business 1.4.2 Partnership Separate accounting entity Not separate legal entity Not separate taxable entity Unlimited liability - individual partners personally liable for debts of partnership 1.4.3 Company/Corporation (limited Liability) The owners are called the shareholders Separate accounting, legal and taxable entity Limited liability - shareholders personally liable up to the value of their shares 1.5 Accounting Equation A = L + SE 1.5.1 Assets Definition: Resources controlled by an entity. Ability to provide future economic benefit. As a result of a past event/transaction. Recognition: Probability item is recognised if it is probable that any future economic benefit associated with the item will flow to or from the entity i.e. more likely than less likely, not absolute certainty. AND Reliably measured item is recognised if it has a cost/value/$ figure that can be measured with reliability i.e. if item arises from a transaction and hence, possesses a cost. 1.5.2 Liabilities Definition: Present obligation of an entity. As a result of a past event/transaction. Expected to result in an outflow of resources of economic benefit
Recognition: Probability item is recognised if it is probable that any future economic benefit associated with the item will flow to or from the entity i.e. more likely than less likely, not absolute certainty. AND Reliably measured item is recognised if it has a cost/value/$ figure that can be measured with reliability i.e. if item arises from a transaction and hence, possesses a cost. 1.5.3 Shareholders Equity Definition: Residual interest in the assets. After liabilities have been deducted.
NOTES MATH1002: Linear Algebra The University of Sydney Sign up to get a free cheatsheet and view more videos and notes.