Accounting
Accounting course overview, year 1 business administration
Exam content:
- Lecture topics
- The complete textbook except chapters: 7,8,12,15,20 and 11
(learning objective 2)
- Appendix 10A, for the rest no appendices
,LO = Learning Objective
Lecture 1 – Chapter 1 & 2
◼ Chapter 1: Accounting and the Business Environment
LO 1: Why is accounting important and list the users of accounting information
Why is accounting important?
→ As an organization you need to make a lot of decisions and these are based on financial
information. We need to know how to deal with this information
→ Accounting is the information system that measures business activities, processes the
information into reports, and communicates the results to decision makers
- Financial accounting → for external uses (investors, consumers, banks etc.)
- Managerial accounting → for internal uses
LO 2: Describe the organizations and rules that govern accounting
Generally Accepted Accounting Principles (GAAP)
- Guidelines that govern accounting
- Based on a conceptual framework
→ Information should be relevant: the info allows users to make a decision
→ Information should be faithfully representative: the info is complete, neutral and free
from material error
4 accounting principles/assumptions
1. Economic entity assumption
→ Assumes that every organization is a separate economic unit
2. Cost principle
→ All our assets and liabilities should be recorded in the books for the costs we paid
for them at the actual costs
3. Going concern assumption
→ We assume that the business will continue for the future
4. Monetary unit assumption
→ All our transactions are recorded in a monetary unit (euros, dollars etc.)
LO 3: Describe the accounting equation, and define assets, liabilities and equity
Accounting equation
Assets = liabilities + equity
→ this equation should always be in balance
Assets: everything that an organization owns. Economic resources that are expected to
benefit the business in the future
→ Who pays for these assets?
- Owner and organizations that give money (banks for example)
,Liabilities: debts that are owed to creditors (buy something now, pay afterwards)
Equity: the owner’s residual claim against the assets of the company.
→ The owner’s claim on the resources increase and decrease as the company engages in
earnings activities
→ Putting money in an organization (owner’s capital)
Owner’s capital – owner’s withdrawals + revenues – expenses
Revenues: economic resources that have been earned by delivering products or services to
customers
Expenses: the costs associated with selling goods or services
Transaction = an special kind of historical event
- It involves the exchange of economic resources
- We must be able to measure the economic impact in monetary units
Prepare financial statements
4 different financial statements:
1. Income statement
→ Shows all the revenues and expenses the business has → creates loss or income
→ Shows how profitable an organization is
2. Statement of owner’s equity
→ Overview of changes in owner’s capital during the period
3. Balance sheet
→ Reports assets and claims to those assets at a specific point in time
→ The balance sheet follows the accounting equation
4. Statement of cash flows
→ Answers the questions of whether the business generates enough cash to pay its
bills
→ An explanation of what happens with cash
◼ Chapter 2: Recording Business Transactions
LO 1: Explain accounts as they relate to the accounting equation and describe common
accounts
What is an account?
→ the detailed record of all increases and asset, liability, equity, revenue or expense during
a specific period
LO 2: Define debits, credits, and normal account balances using double-entry accounting
and T-accounts
Double entry accounting: transactions always have two impacts on the accounting equation
→ These “double” entries help keep the accounting equation in balance
, T-account: A T-account is a shortened visual form of the more formal general ledger account
format
→ Increases are shown on one side of the T-account and decreases on the other side
→ The T-account is balanced at the end of the period
Debits = left
Credit = right
Debits and credits are used to record the increases and decreases in T-accounts
→ Any time we put a debit in one account we have to put an equal credit in another account
→ An account with more debits than credits will have a “debit” balance
→ An account with more credits than debits will have a “credit” balance
→ Some accounts will be increased with debits, others with credits
- If an asset increases → Debit
- If an asset decreases → Credit
- If a liability/equity increases → Credit
- If a liability/equity decreases → Debit
LO 3: Record transactions in a journal and post journal entries to the ledger
Record transactions in a journal and post journal entries to the ledger
Transactions are first recorded using a “journal entry”
The account to be debited is usually written first
Journal entry:
LO 4: Prepare the trial balance and illustrate how to use the trial balance to prepare
financial statements
Trial balance: the primary purpose is to prove the mathematical equality of debits and
credits after posting
→ the amounts come from the individual account balances in the General Ledger
First: prepare the income statement → by looking at the revenues and expenses
The information for the statement of owner’s equity comes from the trial balance and from
the income statement
Accounting course overview, year 1 business administration
Exam content:
- Lecture topics
- The complete textbook except chapters: 7,8,12,15,20 and 11
(learning objective 2)
- Appendix 10A, for the rest no appendices
,LO = Learning Objective
Lecture 1 – Chapter 1 & 2
◼ Chapter 1: Accounting and the Business Environment
LO 1: Why is accounting important and list the users of accounting information
Why is accounting important?
→ As an organization you need to make a lot of decisions and these are based on financial
information. We need to know how to deal with this information
→ Accounting is the information system that measures business activities, processes the
information into reports, and communicates the results to decision makers
- Financial accounting → for external uses (investors, consumers, banks etc.)
- Managerial accounting → for internal uses
LO 2: Describe the organizations and rules that govern accounting
Generally Accepted Accounting Principles (GAAP)
- Guidelines that govern accounting
- Based on a conceptual framework
→ Information should be relevant: the info allows users to make a decision
→ Information should be faithfully representative: the info is complete, neutral and free
from material error
4 accounting principles/assumptions
1. Economic entity assumption
→ Assumes that every organization is a separate economic unit
2. Cost principle
→ All our assets and liabilities should be recorded in the books for the costs we paid
for them at the actual costs
3. Going concern assumption
→ We assume that the business will continue for the future
4. Monetary unit assumption
→ All our transactions are recorded in a monetary unit (euros, dollars etc.)
LO 3: Describe the accounting equation, and define assets, liabilities and equity
Accounting equation
Assets = liabilities + equity
→ this equation should always be in balance
Assets: everything that an organization owns. Economic resources that are expected to
benefit the business in the future
→ Who pays for these assets?
- Owner and organizations that give money (banks for example)
,Liabilities: debts that are owed to creditors (buy something now, pay afterwards)
Equity: the owner’s residual claim against the assets of the company.
→ The owner’s claim on the resources increase and decrease as the company engages in
earnings activities
→ Putting money in an organization (owner’s capital)
Owner’s capital – owner’s withdrawals + revenues – expenses
Revenues: economic resources that have been earned by delivering products or services to
customers
Expenses: the costs associated with selling goods or services
Transaction = an special kind of historical event
- It involves the exchange of economic resources
- We must be able to measure the economic impact in monetary units
Prepare financial statements
4 different financial statements:
1. Income statement
→ Shows all the revenues and expenses the business has → creates loss or income
→ Shows how profitable an organization is
2. Statement of owner’s equity
→ Overview of changes in owner’s capital during the period
3. Balance sheet
→ Reports assets and claims to those assets at a specific point in time
→ The balance sheet follows the accounting equation
4. Statement of cash flows
→ Answers the questions of whether the business generates enough cash to pay its
bills
→ An explanation of what happens with cash
◼ Chapter 2: Recording Business Transactions
LO 1: Explain accounts as they relate to the accounting equation and describe common
accounts
What is an account?
→ the detailed record of all increases and asset, liability, equity, revenue or expense during
a specific period
LO 2: Define debits, credits, and normal account balances using double-entry accounting
and T-accounts
Double entry accounting: transactions always have two impacts on the accounting equation
→ These “double” entries help keep the accounting equation in balance
, T-account: A T-account is a shortened visual form of the more formal general ledger account
format
→ Increases are shown on one side of the T-account and decreases on the other side
→ The T-account is balanced at the end of the period
Debits = left
Credit = right
Debits and credits are used to record the increases and decreases in T-accounts
→ Any time we put a debit in one account we have to put an equal credit in another account
→ An account with more debits than credits will have a “debit” balance
→ An account with more credits than debits will have a “credit” balance
→ Some accounts will be increased with debits, others with credits
- If an asset increases → Debit
- If an asset decreases → Credit
- If a liability/equity increases → Credit
- If a liability/equity decreases → Debit
LO 3: Record transactions in a journal and post journal entries to the ledger
Record transactions in a journal and post journal entries to the ledger
Transactions are first recorded using a “journal entry”
The account to be debited is usually written first
Journal entry:
LO 4: Prepare the trial balance and illustrate how to use the trial balance to prepare
financial statements
Trial balance: the primary purpose is to prove the mathematical equality of debits and
credits after posting
→ the amounts come from the individual account balances in the General Ledger
First: prepare the income statement → by looking at the revenues and expenses
The information for the statement of owner’s equity comes from the trial balance and from
the income statement
