ACG2001 PRINC ACCT I

Chapter 1 - Study Notes (These notes are selected topics to study, they do not replace the text book)

Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities. Accounting is guided by principles, standards, concepts, and assumptions. Ethics is an important concept which are beliefs that distinguish right from wrong.

Generally Accepted Accounting Principles (GAAP) are concepts and rules that govern financial accounting. The purpose of GAAP is to make information in accounting statements relevant, reliable, and comparable.

In the U.S. the Securities and Exchange Commission (SEC) has the legal authority to set GAAP. The SEC delegates the task of setting GAAP to the Financial Accounting Standards Board (FASB), which is a private-sector group.

The International Accounting Standards Board (IASB) issues standards, which are called International Financial Reporting Standards (IFRS), that identify preferred accounting practices in the global economy. IASB hopes to create harmony among accounting practices in different countries. The FASB and IASB are attempting to converge, reduce, and eliminate the differences into a single set of accounting principles. ASSUMPTIONS / PRINCIPLES

Economic Entity Assumption (also called business entity concept) - a business is accounted for separate from other business entities and separate from its owner. Cost Principle (also called cost concept) - amounts are recorded in the accounting records at their actual cost or purchase price. The Going Concern Assumption- assumes the entity will remain in operation for the foreseeable future.

Monetary Unit Assumption (also called unit of measure concept) - transactions and events are expressed in monetary, or money, units. Generally this is the currency of the country in which it operates. Matching Principle(also called matching concept or expense recognition principle) - expenses incurred during a period are matched with the revenues that those expenses help generate.

ACCOUNTING EQUATION

The basic accounting equation is Assets = Liabilities + Owner's Equity Assets - resources a company owns or controls that are expected to carry future benefits (i.e. cash, supplies, equipment and land). Liabilities - creditors' claims on assets. These claims reflect obligations to transfer assets or provide products or services to others. Equity -owner's claim on assets. Also called owner's equity, net assets or residual equity.

FINANCIAL STATEMENTS

The four financial statements and their purposes are: 1. Income Statement - describes a company's revenues and expenses along with the resulting net income or loss over a period of time (Net income occurs when revenues exceed expenses. Net loss occurs when expenses exceed revenues). 2. Statement of Owner's Equity - explains changes in equity from net income (or loss) and from owner investment and withdrawals over a period of time. 3. Balance Sheet - describes a company's financial position (types and amounts of assets, liabilities, and owner's equity) at a point in time. 4. Statement of Cash Flows - identifies cash inflows (receipts) and cash outflows (payments) over a period of time.

Questions

• In D2L, review the Course Work Ch 1 module, Learning Activities pages. Discuss one item from the Study Notes that you found interesting.
• In MyLab review the Ch 1 Study Resources assignment and the Study Plan and Multimedia Library (left side of your screen). Explain how these resources will be useful to you as you proceed through the course.