Acc - Module 6 - created from Mind Map

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Process of Identifying, measuring, recording, communicating financial info.

Basic Concepts

Balance Sheet (Statement of Financial Information)

For a company's business activities

"Communication" refers to a company's financial statements

Decision makers can make informed decisions

Decision Makers - Creditors & Investors

Good decisions - assumes agreement about the content in F.S & how the amounts are measured

GAAP - Rules business must follow with F.S

Entity Concept - separate from its owners & from any other business

Transactions - Exhange of property or service with another entity

Source Documents - Provide Objective Support for recording of transactions

Monetary Unit Concept

Historical Cost Concept - Record's its transactions based on amount exchanged at time it occurred

"Another Entity" Owners

Economic Events not transactions

Depreciation - Use of an asset (NCA)

Revaluation of Buildings

Decrease in value

Only if Fair Value Measurement has been chosen

Increase in Value

E.g. Sales Receipts, cheque butt, invoice, payroll timesheet, log book, print out from ATM

Recordable Economic Events

Incl. Transactions, F.S that summarize such events recorded in "money"

Monetary Unit -National Currency of Country the company operates in

Values shown on F.S based on Original Cost

Info for Internal & External Users

Reports Financial Position of Company incl. assets, liabilities, & shareholders' equity at specific point in time

Balance Sheet Equation (AKA, Acc Eq): A = L + OE

Evaluate business's ability (Profit & remaining Solvent)

Relationship between assets of business & how they are financed

Assets = Economic Resources & Liabilities & Owner's Equity = Claims on Economic Resources

Assets - Resources of company

Liabilities - Obligations of Company

Assets Financed - Borrowing from Creditors (Debts AKA. Liabilities) or issuing shares to owners (Equity)

Both owners & creditors have claims against assets, in company - owner's claims = Shareholder's Equity

Owner's Equity - Represent Owner's Current Investment in Assets of Business

Equity represents share of assets claimed by owners

2 Primary Sources of Equity - Contributed Capital & Retained Earnings

Often called Residual - what's left over

Sole Trades, these 2 sources are in one account called "capital" but companies kept separate

A - L = OE

Creditors have priority (legally) over owners

If Assets & liabilities are measured according to GAAP, than dollar value of Equity must be measured properly

Requirements to appear on BS: Past Event, Resource controlled by company, provide future economic benefits, reliably measured - Verifiable (E.g. Source Doc)

CA - Cash &other assets that business expects to convert into cash, sell, or use up within 1 year of balance sheet date.

NCA - Use it longer than 12 months

Assets can have a Negative Balance

Not all resources are shown in BS

Helps asses liquidity also listed in in order of liquidity

On BS date, asset may not be shown greater than exp eco benefit measured of date

Acc rec.Debtors - Shown at recoverable amount

Inventory (Stock) - good held or resale, shown at lower of cost or net realisable value (whichever is lower)

Prepayment - Expense prepaid (CL)

PP&E (Fixed Assets) - tangible productive assets used in operations e.g.. land, buildings, equipment

Intangible Assets - lack physical Substance e.g.. patents, trademarks, copy rights

Long - Term Investments - Not used in operations, expected benefits usually from rent or sale. E.g. Land, Buildings, & shares in other companies

BankOverdrafts (Liability) - Negative cash balance

Asset Contra Accounts - e.g. accumulated depreciation & Allowance for Doubtful Debts

ACA means creating a "negative' asset account instead of reducing a particular asset directly

BS and footnote disclosures

Requirements: Past Event, Cause an outflow of Resources, Reliably Measured

Current Liabilities - Obligations company expects to pay within on year

Non - Current Liabilities (Long - Term Liabilities) Present Obligations that require payment beyond one year of the BS date

E.g. Accounts Payable, Short - term borrowings

e.g. Notes Payable. Mortgage payable, Loan or Bonds payable

If due date is within on year of the BS date, the debt becomes current.