Provided by: Laurier SOS
Things to Cover
The Accounting Environment IFRS and GAAPs Accounting’s Conceptual Framework Financial Statements Overview Recording Transactions Accrual Accounting Account’s Receivable Amortization Inventory
The Accounting System
Financial Accounting System (preparation of four basic financial statements).
Managerial Accounting System (preparation of detailed plans, forecasts and reports).
External Decision Makers (investors, creditors, suppliers, customers, etc.).
Internal Decision Makers (managers throughout the organization).
• A common Global set of Accounting Standards • IFRS applies to: – Publically accountable enterprises – Public sector – Private enterprise and others can choose to adopt or not
Dates to Know
Opening Balance Sheet January 1, 2010
January 1, 2011 Date of Adoption
First Reporting December 31, 2011
IFRS Statement of Financial Position Statement of Comprehensive Income Statement of Changes in Equity Statement of Cash Flow GAAP Balance Sheet Income Statement
Statement of Shareholder Equity Statement of Cash Flow
• Auditor’s have a responsibility to general public to assess the fairness of financial statements - Ensure compliance with GAAP - Examining financial statements and transactions - Expressing an opinion as to the fairness
Generally Accepted Accounting Principles (GAAP)
• Separate entity: Transactions of the business entity are separate from transactions of owners. • Continuity (Going Concern): The entity is expected to continue its operations into the near future (>= 1year). • Unit-of-measure: Accounting figures are reported in the national monetary unit ($). • Periodicity: The long life of a company can be reported over a series of short time periods. • The historical-cost principle requires an asset to be recorded at the historical cash-equivalent cost • The full-disclosure principle requires: – – a complete set of financial statements and notes to the financial statements that disclose other information of consequence to the users (ex. Pending Lawsuits)
Accounting Conceptual Framework
Primary Characteristics • Understandability: easy to read • Relevance: predictive value, feedback value, and timeliness. • Reliability: verifiability, representational faithfulness, and neutrality. Secondary Characteristics • Comparability: across companies. • Consistency: over time.
Materiality – An amount large enough to affect a financial statement user’s judgment Cost-Benefit – The cost of disclosing a piece of financial information should not exceed the benefits of the disclosure Conservatism – do not overstate assets or revenues, or understate liabilities and expenses Industry standards – if industry standards dictate a certain accounting treatment for something, follow that standard
• A budget helps to coordinate business activities and the cash inflows and outflows 1) Begin with the beginning cash balance 2) Add the budgeted cash receipts and subtract the cash payments 3) This results in the expected ending cash balance • This amount can than be compared at the end of the year to see how the company performed
Cash Budget for the year ended December 31, 2010
Beginning cash balance, January 1, 2010 Add Estimated Cash Recepits Collections from Customers Sale of Equipment for Cash Interest income
$ 55,000.00 5000 300 60,300 65,405
Subtract Estimated Cash Payments Inventory Purchased Operating Expenses Payment of Liabilties
$ 42,000.00 14000 700 56,700 $ 8,705.00 $ 9,000.00
Cash Available before Financing Bugeted Cash Balance (What the company wants in cash) New Financing Needed
Financial Statement Relationships