1.3.2 Accrual Accounting
Accrual-basis accounting is the method in which revenue is recognized when earned, and expenses are recognized when incurred, regardless of when cash is received or paid.
Summary & Exercise
Cash and accrual bases of accounting
1.1 Overview of Accounting
1.1.1 The definition of accounting
Accounting may be defined as a process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of information.
1. 2 Basic Accounting Assumptions
1.2.1 Accounting Entity Assumption 1.2.2 Going-concern Assumption 1.2.3 Accounting Period Assumption 1.2.4 Money Unit Assumption
4
tax
Want to know about business profits in order to assess the
authorities tax payable by the company.
5
employee s
Need to know about the company’s financial situation because their future careers and the level of their wages and salaries depend on it.
3
regulatory elements such as Company Law, accounting
management accounting is not
standards, and stock exchange
4
concentrates on the business as a whole
may analyze the components of the business such as particular products or cost centers
considers not only the past cost
2
based on past transactions and concept, but the present and the
events
future that affect the operation of
company.
determined by several different
1.1.2 Accounting process Analyzing Recording Classifying Summarizing Reporting
1.1.3 Users of accounting
No. User
Comment
1
managers of the company
People appointed by the company owners to supervise the daily activities of the company need information about the company’s current and expected future financial situation, to make decisions.
2
owners/sh arehold-ers of the company
Want to assess how effectively management is performing and how much profit they can withdraw from the business for their own use.
3trBiblioteka de contactsE.g. Suppliers on credit and customers. Suppliers want to know about the company’s ability to pay its debts; customers need to know that the company is a secure source of supply and is in no danger of closing down.
1.3 Cash Accounting and Accrual Accounting
1.3.1 Cash Accounting
Cash-basis accounting is the method in which transactions are recorded in the accounting period that cash are received or paid.
Need information because enterprises affect them in many 6 the public ways: e.g. by providing jobs, providing investment
1.1.4 Financial accounting and management accounting
Contents:
The definition of accounting, accounting process, users of accounting, financial accounting and management accounting
Basic accounting concept
Example:
A service fee of $12,000 has been received on 20 December, 2014 in advance for the service to be provided from January to December, 2014.
Cash accounting: The transaction is recorded on 20 December, 2014 as revenue of $12,000.
Part 1 Introduction to Basic
Accounting
Task 1 Basics of Accounting
Mini Case:
Assume that you are the manager of a small restaurant. How do you know whether your restaurant is making profits or suffering losses? How do you know whether you have enough cash to pay for goods and staff salary? And how do you know whether you are able to pay satisfactory return to your owners? The answer to these questions in one word is accounting. If you are considering opening another restaurant in a neighboring town, how to make a right decision? Accounting information about the restaurant will also be a major factor in your deciding whether to open the new restaurant and the bank is deciding whether to finance the expansion.
Key Points:
1. The definition of accounting. 2. The process of accounting. 3. Users of accounting. 4.Financial accounting and management
accounting. 5. Four basic accounting assumptions. 6. Cash accounting and accrual accounting.
No. Financial accounting
Management accounting
recording and analysis of 1 financial results of transactions
over a specific period
providing information to enable management to make decisions
Accrual accounting: The transaction is recorded on 20 December, 2014 as unearned revenue of $12,000, which is a kind of liability. Revenue of $1,000 will be recognized at each month from January to December the next year.