Basic concept

What is accounting?

  • record & measure bussiness activities
  • processes the data into reports
  • communicates the results to decision makers / users

Types of accounting:

  • financial accounting → for external users

    • investors
    • creditors
    • government regulatory agencies & taxing authorities
    • ...

  • management accounting → for internal users

    • senior and middle management

Accounting principles:

  • accounting entity concept
  • accounting period concept
  • accrual accounting
  • going concern assumption

Accounting regulations:

Business activities

Bussiness activities consist of assets, liabilities and (owner's) equity.

Assets = Liabilities + (owner's) Equity

Equity = Capital + Revenues - Expenses - Drawings
Profit/Loss = Revenues - Expenses
→
Equity = Capital + Profit – Drawings
→
Net assets = Assets - Liabilities = Capital + Profit – Drawings
Capital: owner's capital contribution

→ For assets:

  • controlled by the entity
  • past events
  • future economic benefits

→ For liabilities:

  • present obligation
  • past events
  • outflow economic benefits

→ For (owner’s) equity:

  • ↑ contributions & revenues
  • ↓ drawings & expenses

Business transactions

A transaction is an event that involves at least 2 parties exchanging resources.

A transaction:

  • affects at least 2 accounts
  • affects one side or both sides

After each transaction, the accounting equation must be balanced.

Transaction identification process:

  1. events
  2. criterion: Is the financial position changed?
  3. record / don't record

Financial statements

A complete set of financial statements comprises

  • statement of comprehensive income / income statement

    • profitability

  • statement of changes in equity

    • the earnings were kept and reinvested

  • statement of financial position / balance sheet

    • the economic resources owned (assets) & the debts owed (liabilities)

  • statement of cash flows

    • business activity:

      • operating
      • investing
      • financing activities

→ For comprehensive income:

  • a summary of income & expenses → profit / loss
  • a specific period

→ For changes in equity:

  • the changes in owners’ equity
  • a specific period

→ For financial position:

  • all the entity’s assets, liabilities and owners' equity
  • a specific date

→ For cash flows:

  • the amount of cash coming in & going out
  • a specific period

A heading of financial statement showing:

  • the name of the business
  • the name of the financial statement
  • the date or time period
  • *the specific details

Code of ethics

Code of Ethics | APESB

This code includes:

  • integrity
  • objectivity
  • professional competence and due care
  • confidentiality
  • professional behavior