Object of Accounting

7/28/2019 Object of Accounting

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Accounting is an information system that:

Identifies

Records

Communicates the economic events of an organization tointerested users


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Object of accounting:

providing information about the status and size of material and

financial resources owned or controlled by economic entities

providing information about the performances (financial results) of

economic entities

providing information about entity relationships to owners and

third parties (creditors)


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Accounting provides companies financial situation at periodend in some form generally acceptedBalance Sheet

Accounting equation which reflects the situation of anorganizational stays always in balance:

Assets Liabilities Equity

Material and

financial resources Fundingsources

BALANCE SHEET

Material and

financial resourcesFunding sources


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BALANCE SHEET

ASSETSEQUITY (own funding resources)

LIABILITIES (attracted funding resources)

Funding sources = own funding sources (from shareholders) +

attracted funding sources outside the company (from banks, suppliers)

EquityLiabilities

Material and financial resources = cash, buildings, lands, that belong to

companyAssets


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Assets

- are economic resources owned by business/company

There are 2 categoriesof assets:

Long-term assets

Curent assets

Assets:


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Long-term assets:

-are to be held for many years (more than 1 year) and are not

intended to be disposed of in the near future

There are 3 categoriesof long-term assets:

Intangible assets

Fix assets Long term investments

Long-term assets:


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Caracteristics:

- lack physical substance and usually are very hard to evaluate

- include patents, copyrights, franchises, trademarks, trade names

Intangible assets:
http://www.press.adidas.com/desktopdefault.aspx/tabid-3/


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Caracteristics:

- are those that have aphysical substance andcan be touched

- includes asset like land, buildings, machinery, furniture

Fix assets:


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Caracteristics:

- are amounts of money invested on long-term placements

- includes bonds, common stock, or long-term notes

Long-term investments:
http://www.pennylicious.com/images/2006-09/confederate-bond.jpg


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Caracteristics:

- are represented by cash and other assets expected to be

converted to cash, sold, or consumed either in a year or in the

operating cycle

Items:

Inventory trading these assets is a normal business of a company

Receivables

total amount of uncollectable accounts from costumersShort-term investments include securities bought and held for sale in the

near future to generate income on short-term price differences

Cash and cash equivalents it is the most liquid assets, which includes

currency

Curent assets:
http://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Receivablehttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Cash_and_cash_equivalentshttp://en.wikipedia.org/wiki/Cash_and_cash_equivalentshttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Receivablehttp://en.wikipedia.org/wiki/Inventory


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Caracteristics:

- is a list for goods and materials, or those goods and materials

themselves, held available in stock by a business

Items:

Raw materials - materials and components scheduled for use in making a

product

Work in process (progress), WIP - materials and components that have beguntheir transformation to finished goods.

Finished goods - goods ready for sale to customers.

Goods for resale - Good purchased for resale by a company

Inventory:
http://en.wikipedia.org/wiki/Raw_materialshttp://en.wikipedia.org/wiki/Work_in_processhttp://en.wikipedia.org/wiki/Finished_goodshttp://en.wikipedia.org/wiki/Finished_goodshttp://en.wikipedia.org/wiki/Finished_goodshttp://en.wikipedia.org/wiki/Work_in_processhttp://en.wikipedia.org/wiki/Raw_materials


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Resume: ASSETS

- Intangible assets

- Fix assets

- Long term investments

LONG TIME ASSETS (> 1 year)

- Inventory

- Receivables

- Short term investments

-Cash and cash equivalents

CURRENT ASSETS (< 1 year)


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Exemples: ASSETS

- SAP or ORACLE soft

- position of the shop in the centre vile

- the land owned by company

- stock bought for long time- wood (for a company who produce furniture)

- chair & table (for a company who produce furniture)

- stock bought for short time

- the building where the company produce goods

- the equipments who produce finished goods

- cash in bank

- money to get for suppliers


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Equity and Liabilities


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What equity is?

also called:

shareholder's equity or

net worth or

book value

represent ownership interest in a corporation in the form ofcommon stock or preferred stock

the amount of the funds contributed by the owners (the stockholders)

plus the retained earnings (or losses)

represent the difference between total assets and total liabilities


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What equity is?

Include:

- Share Capital

- Profit/loss for the year

- Legal reserves

- Retained earnings


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What share capital is?

Def:

- The portion of a company's equity that has been obtained (or will be

obtained) by trading stock to a shareholder for cash or an equivalent item of

capital value*** The amount of share capital a company has can change over time because

each time a business sells new shares to the public in exchange for cash, the

amount of share capital will increase

- Total amount of cash and other assets paid in to the corporation by

stockholders in exchangefor capital stock.

Share capital = Number of common shares * Book value/share


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Ownership Rights of Stockholders


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A Stock Certificate


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Issuance of Stock

A corporation can issue common stock:

- directlyto investors or

- indirectlythrough an investment banking firm(brokerage house).

Direct issue is typical in closely held companies.

Indirect issue is customary for a publicly held corporation.

*In an indirect issue, the investment banking firm may agree to underwrite theentire stock issue


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What profit is?

Def:

- Thepositive gainfrom an investment or business operation aftersubtracting for all expenses

- The difference between revenue and expenses

Gross profit = Net salesCost of goods sold

Net profit=Profit After Tax

*** Note that the words earnings,profitandincome are used as substitutes


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What loss is?

Def:

- The company's expenses exceed its revenues

Net Loss = ExpensesRevenue

*** Note that the words loss andnet loss are used as substitutes


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What reserve is?

Def:

- legal reservefund from profit

- many legislations require creation of the fund as a

percentage of profits (in Romania 5% from gross profit

but no more then 20% of share capital)


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What retained earning is?

Def:

- retained earnings refers to the portion of net income

which is retained by the corporation from one year to thenext year

- retained earnings is the part of the company profitwhich

is not distributed to its owners


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Liabilities

Def:

- an obligation of an entity, arising from past transactions

or events, the settlement of which may result in thetransfer or use of assets (cash)

Categories:

- Current liabilities- Long-term liabilities


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Current Liabilities

Def:

- liabilities which are reasonably expected to be liquidated (paid) within ayear

Categories:

- Accounts payable - are ordinarily debts to suppliers (goods, services)

- Accrued liabilities - are obligations for goods and services provided to acompany for which invoices have not yet been received

- Unearned Revenues (advances from customers)

are a company receivescash before a service is received (airline sells a ticket for future flights)

- Short - term borrowings (notes)money received (something) fromsomebody (banks or other creditors) temporarily, expecting to return it


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Long-term Liabilities

Def:

- Obligations that are expected to be paid after one year

Include:- Bonds - a bond is like a loan: the issuer is the debtor, the holder is the creditor, and

the coupon is the interest

- Leasing liabilities - a process by which a firm can obtain the use of a certain fixedassets for which it must pay a series of periodic payments

- Long - term borrowings (notes) - money received from somebody (banks or other

creditors) for more than 1 year, expecting to return it

***Long-term notes may be secured by a mortgage that pledges title to specific assetsas security for a loan


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Accounting principles

The mains principles operating in accounting area:

-Double postingprinciple

-Double entry principle


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Double posting principle

All accounting elements are presented from 2 points of view:

-one who show the economic materiality (assets)

- other who show theprovenience (equity and liabilities)

The tool used to apply the double posting principle is the BALANCE

SHEET

Balance sheets are usually presented with two sections balancing (Assets

vs. Equity and Liabilities)

BALANCE SHEET

AssetsEquity

Liabilities


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Balance sheet

-A balance sheet is often described as a instant-picture of a

company's financial condition

-A standard company balance sheet has three parts:

- assets,

-liabilities and

-ownership equity


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Balance sheet

BALANCE SHEET

Long-term assets

Intangible assets patents, trademarks, and goodwill

Fixed assets

Property, plant and equipment

Long

term investmentsbonds, common stock, or long-term

notes

Current assets

Inventory Raw materials, Finished goods,

Goods for resale

Receivables Trade receivables and other

receivables

Short-term investments

Derivative financial instruments

Cash and cash

equivalents

Share capital

Legal Reserve

Profit (loss) for the year

Retained earnings

Longterm liabilities

Long-term Borrowings

Leasing liabilities

Current liabilities

Trade and other payables

Tax liabilities

Short-term borrowings

Unearned Revenues

Assets

Equity

Liabilities


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Balance sheet

Pharmaceutical Factory:

zinc for preparing medicine 40.000

aspirin pill 50.000

chemical preparing technology 100.000

aspirin patent 70.000

buildings for production 80.000

contributions from shareholders 100.000

cash 10.000

bank borrowings 200.000

trademarks 30.000

money to collect from costumers 50.000money to pay to suppliers 50.000

cash in banks 20.000

taxes to pay 50.000

profit of the year past 70.000

loss 20.000


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Please fill the balance sheet!!!

BALANCE SHEET

Long-term assets

Intangible assets patents, trademarks, and goodwill

Fixed assets

Property, plant and equipment

Long

term investmentsbonds, common stock, or long-term

notes

Current assets

Inventory Raw materials, Finished goods,

Goods for resale

Receivables Trade receivables and other

receivables

Short-term investments

Derivative financial instruments

Cash and cash

equivalents

EquityShare capital

Legal Reserve

Profit (loss) for the year

Retained earnings

Longterm liabilities

Long-term Borrowings

Leasing liabilities

Current liabilities

Trade and other payables

Tax liabilities

Short-term borrowings

Unearned Revenues


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Current year: Profit or loss?

Pharmaceutical Factory:

Magnesium for preparing medicine 100.000

Strepsils pill 250.000

contributions from shareholders 300.000

stocks from intergroup companies 50.000

bank borrowings 300.000

money to collect from costumers 150.000

Technical equipments 200.000

Strepsils patent 100.000

Production Hall 100.000money to pay to suppliers 250.000

cash in banks 50.000

taxes to pay 50.000

profit of the year past 100.000

Documents

Object of Accounting