Summary accounting
Week 1 | Chapters 1, 2, 3 and 4
Chapter 1: accounting and the business environment………………………………...….…… 1
Chapter 2: recording business transactions…………………………………………....…….... 3
Chapter 3: the adjustment process……………………………………………………....……. 4
Chapter 4: completing the accounting cycle…………………………………………....…….. 6
Week 2 | Chapters 5, 6, 9 and 10
Chapter 5: merchandising operations…………………………………………………….….... 8
Chapter 6: commercial inventory………………………………………………………...….. 10
Chapter 9: receivables…………………………………………………………………..…… 12
Chapter 10: fixed assets, natural resources and tangible resources……………………...….. 14
Week 3 | Chapters 11 and 14
Chapter 11: current liabilities…………………………………………………………...…… 16
Chapter 14: long-term liabilities……………………………………………………....…….. 17
Week 4 | Chapters 16, 17 and 13
Chapter 16: the statement of cash flows……………………………………………....…….. 19
Chapter 17: financial statement analysis……………………………………………....…….. 21
Chapter 13: corporations…………………………………………………………………….. 23
Week 5 | Chapters 18, 19, 21 and 22
Chapter 18: introduction to management accounting………………………………....…….. 26
Chapter 19: job order costing………………………………………………………...……… 29
Chapter 21: cost-volume-profit analysis………………………………………………..…… 31
Chapter 22: master budgets……………………………………………………………...…... 34
Week 6 | Chapters 23 and 24
Chapter 23: flexible budgets and standard cost systems…………………………………….. 35
Chapter 24: cost allocation and responsibility accounting……………………………....…... 37
Week 7 | Chapters 26 and 27
Chapter 25: short-term business decisions…………………………………………....……... 40
Chapter 26: capital investment decisions……………………………………………....……. 42
, Lecture 1.1: chapter one
The importance of accounting:
- Accounting: the information system that measures business activities, processes the
information into reports and communicates the results to decision-makers
- Two types of accounting: financial accounting and managerial accounting
- Financial accounting: the external view of accounting (providing information for external
decision-makers)
- We talk about investors, competitors or authorities
- All people who do not have a direct vision into the company
- Managerial accounting: the internal view of accounting (providing information for internal
decision-makers)
- We talk about the middle or top management
The organizations that govern accounting:
1. Financial Accounting Standards Board (FASB): creates the rules and standards that
govern financial accounting → privately funded
- In Europe: International Accounting Standards Board (IASB) and National GAAP
- National GAAP: each country has its own accounting agency
2. Securities and Exchange Commission (SEC): oversees the US financial markets
- In Europe: European Securities and Market Authority (ESMA) and National
Authorities
Generally Accepted Accounting Principles (GAAP):
- Principles and rules accountants follow
- Primary objective financial reporting: provide information useful for making
investments and lending decisions → useful information is relevant and faithfully
representative
- Faithfully representative: info is complete, neutral and free from material error
- Relevant: allows users of the information to make decisions
Accounting assumptions:
- Economic entity assumption: we choose an idea that each company stands apart from other
entities (an organization stand apart as a separate economic unit)
- This is done to set boundaries between these different companies
- Monetary unit assumption: we need to compare different numbers over time
- Difficult because of inflation → accountants assume it is not real
- Going concern assumption: we assume that our company will continue to operate in the
next foreseeable future
- Important because: if this is not the case some accounting problems/standards will
change
- Cost principle: we need to record our costs, efforts and liabilities at the actual costs
(historical costs) and not what we think the cost is
1
,The accounting equation: Assets = Liabilities + Equity
- Rule: the accounting equation must always be in balance
- Assets: Economic recourse that is expected to benefit the firm in the future
- Land, furniture, inventory, cash
- Liabilities: debts that are owed to creditors
- Accounts payable (money you owe to suppliers), notes payable (long-term accounts
payable), salaries payable (money you owe your employees)
- Equity: the owner’s residual claim against the assets of the company (capital invested by
the owner)
- Owner’s capital, owner’s withdrawals
- Equity = owner’s capital - owner’s withdrawals + revenues (all money generated
by selling your service) - expenses (everything you have consumed during your
service)
Using the accounting equation to analyze transactions:
- Transaction: an event that affects the financial position of a business
- It involves the exchange of economic resources
- We must be able to measure the economic impact in monetary units
Financial statements: business documents used to communicate information needed to make
business decisions
1. Income statement (winst-en-verlies rekening): reports the net income or loss of the firms’
operations for a time period
2. Statement of owner’s equity: shows the amounts and causes of changes in owner’s capital
during a period
3. Balance sheet: reports assets and claim to those assets at a specific point in time
4. Statement of cash flows: answers the question of whether the business generates enough
cash to pay its bills
Return on assets = net income / average total assets
2
, Lecture 1.2: Chapter two
What is an account?:
- Account: the detailed record of all increases and decreases that have occurred in an
individual asset, liability, equity, revenue or expense during a specified period
Defining debits, credits, and normal account balances using double-entry accounting and T-
accounts:
- Double-entry accounting: when transactions have two or more impacts on the accounting
equation
- Keeps the accounting equation in balance
- T-account: a shortened visual form of the more formal general ledger account format
- Increases are shown on one side of the T-account and decrease on the other side
- T-account is balanced at the end of each period
- Debits and credits: debit means left side, credit means right side
- Increase of debit and decrease of credit on asset side means decrease of debit and
increase of credit on liabilities + equity side (keeping balance)
Recording transactions:
A transaction occurs → source documents are prepared → transactions are analyzed → transactions are
journalized and posted
- The accounts to be debited are written first
- Each amount should be posted to the appropriate T-account
Preparing the trial balance and illustrating how to use the trial balance to prepare
financial statements:
- Trial balance: a mean in order to get what we want, shows all accounts in a period
- Primary purpose: to prove the mathematical equality of debits and credits after
posting
- The amounts come from the individual account balances in the general
ledger
- Information for the statement of owner’s equity: comes from the trial balance and
from the income statement
The debt ratio:
- Debt ratio: shows the proportion of assets financed with debt (higher this ratio is, the harder
it is to pay back all debts)
- Debt ratio = total liabilities / total assets
- It can be used to evaluate a business’s ability to pay its debts and to determine if the
company has too much debt to be considered financially healthy
3
Week 1 | Chapters 1, 2, 3 and 4
Chapter 1: accounting and the business environment………………………………...….…… 1
Chapter 2: recording business transactions…………………………………………....…….... 3
Chapter 3: the adjustment process……………………………………………………....……. 4
Chapter 4: completing the accounting cycle…………………………………………....…….. 6
Week 2 | Chapters 5, 6, 9 and 10
Chapter 5: merchandising operations…………………………………………………….….... 8
Chapter 6: commercial inventory………………………………………………………...….. 10
Chapter 9: receivables…………………………………………………………………..…… 12
Chapter 10: fixed assets, natural resources and tangible resources……………………...….. 14
Week 3 | Chapters 11 and 14
Chapter 11: current liabilities…………………………………………………………...…… 16
Chapter 14: long-term liabilities……………………………………………………....…….. 17
Week 4 | Chapters 16, 17 and 13
Chapter 16: the statement of cash flows……………………………………………....…….. 19
Chapter 17: financial statement analysis……………………………………………....…….. 21
Chapter 13: corporations…………………………………………………………………….. 23
Week 5 | Chapters 18, 19, 21 and 22
Chapter 18: introduction to management accounting………………………………....…….. 26
Chapter 19: job order costing………………………………………………………...……… 29
Chapter 21: cost-volume-profit analysis………………………………………………..…… 31
Chapter 22: master budgets……………………………………………………………...…... 34
Week 6 | Chapters 23 and 24
Chapter 23: flexible budgets and standard cost systems…………………………………….. 35
Chapter 24: cost allocation and responsibility accounting……………………………....…... 37
Week 7 | Chapters 26 and 27
Chapter 25: short-term business decisions…………………………………………....……... 40
Chapter 26: capital investment decisions……………………………………………....……. 42
, Lecture 1.1: chapter one
The importance of accounting:
- Accounting: the information system that measures business activities, processes the
information into reports and communicates the results to decision-makers
- Two types of accounting: financial accounting and managerial accounting
- Financial accounting: the external view of accounting (providing information for external
decision-makers)
- We talk about investors, competitors or authorities
- All people who do not have a direct vision into the company
- Managerial accounting: the internal view of accounting (providing information for internal
decision-makers)
- We talk about the middle or top management
The organizations that govern accounting:
1. Financial Accounting Standards Board (FASB): creates the rules and standards that
govern financial accounting → privately funded
- In Europe: International Accounting Standards Board (IASB) and National GAAP
- National GAAP: each country has its own accounting agency
2. Securities and Exchange Commission (SEC): oversees the US financial markets
- In Europe: European Securities and Market Authority (ESMA) and National
Authorities
Generally Accepted Accounting Principles (GAAP):
- Principles and rules accountants follow
- Primary objective financial reporting: provide information useful for making
investments and lending decisions → useful information is relevant and faithfully
representative
- Faithfully representative: info is complete, neutral and free from material error
- Relevant: allows users of the information to make decisions
Accounting assumptions:
- Economic entity assumption: we choose an idea that each company stands apart from other
entities (an organization stand apart as a separate economic unit)
- This is done to set boundaries between these different companies
- Monetary unit assumption: we need to compare different numbers over time
- Difficult because of inflation → accountants assume it is not real
- Going concern assumption: we assume that our company will continue to operate in the
next foreseeable future
- Important because: if this is not the case some accounting problems/standards will
change
- Cost principle: we need to record our costs, efforts and liabilities at the actual costs
(historical costs) and not what we think the cost is
1
,The accounting equation: Assets = Liabilities + Equity
- Rule: the accounting equation must always be in balance
- Assets: Economic recourse that is expected to benefit the firm in the future
- Land, furniture, inventory, cash
- Liabilities: debts that are owed to creditors
- Accounts payable (money you owe to suppliers), notes payable (long-term accounts
payable), salaries payable (money you owe your employees)
- Equity: the owner’s residual claim against the assets of the company (capital invested by
the owner)
- Owner’s capital, owner’s withdrawals
- Equity = owner’s capital - owner’s withdrawals + revenues (all money generated
by selling your service) - expenses (everything you have consumed during your
service)
Using the accounting equation to analyze transactions:
- Transaction: an event that affects the financial position of a business
- It involves the exchange of economic resources
- We must be able to measure the economic impact in monetary units
Financial statements: business documents used to communicate information needed to make
business decisions
1. Income statement (winst-en-verlies rekening): reports the net income or loss of the firms’
operations for a time period
2. Statement of owner’s equity: shows the amounts and causes of changes in owner’s capital
during a period
3. Balance sheet: reports assets and claim to those assets at a specific point in time
4. Statement of cash flows: answers the question of whether the business generates enough
cash to pay its bills
Return on assets = net income / average total assets
2
, Lecture 1.2: Chapter two
What is an account?:
- Account: the detailed record of all increases and decreases that have occurred in an
individual asset, liability, equity, revenue or expense during a specified period
Defining debits, credits, and normal account balances using double-entry accounting and T-
accounts:
- Double-entry accounting: when transactions have two or more impacts on the accounting
equation
- Keeps the accounting equation in balance
- T-account: a shortened visual form of the more formal general ledger account format
- Increases are shown on one side of the T-account and decrease on the other side
- T-account is balanced at the end of each period
- Debits and credits: debit means left side, credit means right side
- Increase of debit and decrease of credit on asset side means decrease of debit and
increase of credit on liabilities + equity side (keeping balance)
Recording transactions:
A transaction occurs → source documents are prepared → transactions are analyzed → transactions are
journalized and posted
- The accounts to be debited are written first
- Each amount should be posted to the appropriate T-account
Preparing the trial balance and illustrating how to use the trial balance to prepare
financial statements:
- Trial balance: a mean in order to get what we want, shows all accounts in a period
- Primary purpose: to prove the mathematical equality of debits and credits after
posting
- The amounts come from the individual account balances in the general
ledger
- Information for the statement of owner’s equity: comes from the trial balance and
from the income statement
The debt ratio:
- Debt ratio: shows the proportion of assets financed with debt (higher this ratio is, the harder
it is to pay back all debts)
- Debt ratio = total liabilities / total assets
- It can be used to evaluate a business’s ability to pay its debts and to determine if the
company has too much debt to be considered financially healthy
3
