Chapter 1 Accounting in Business Chapter 2 the Regulatory Framework

1. Definition of Accounting:

Accounting is an information and measurement system that records, analyses, summarizes information about an organization’s business activities.

2. External Users and Internal Users

3. Types of business (traits of each)

  1. Sole Proprietorship: owned by an individual, not a separate legal entity, unlimited liabilities, no legal requirement for full disclosure and so forth.

  2. Parternership: nearly the same as above.

  3. Limited Company(Corporation): a separate legal entity, limited liabilities, legal requirement for full disclosure and so forth.

4. Two characteristics

Fundamental Qualitative Characteristics of Financial Reporting(distinguish useful financial reporting information from that is not useful or misleading) :

  1. Relevance and Faithful Representation.

  2. Materiality(Imagine one supermarket and one shop. If each of them suffered a loss of 10,000 dollars in financial statement, which suffered more?)

  3. Substance over form. (Middleman Landlord)

Enhancing Qualitative Characteristics:

  1. Timeliness
  2. Understandability
  3. Comparability
  4. Vertifiability

5. Elements of Financial Statements

Accounting Equation: Assests=Liabilities+Equity

  1. Assest: a past event, a present resource, that can yield benefits in the future(inflow of resources), as a result of past events

    Key Words: Receivable, Credit Sales

  2. Liabilities: a past event, a present obligation, that can transfer an economic resource(outflow of resources)

    Key Words: Payable, Credit Purchases

  3. Equity(net assests or residual equity ): the residual interest in the assests of the entity after deducting all its liabilities.

6. The components of a set of financial statements

  1. Statement of Financial Position 财务状况表
  2. Statement of Profit or Loss and other Comprehensive Income 利润及综合收益表
  3. Cash Flow Statement 现金流量表
  4. Statement of Changes in Equity 权益变动法

7. Market Value Method

  1. 市场比较法(3个以上参照物)
  2. 重置成本法:实体性,功能性损耗,经济性
  3. 收益现值法

8. Accrual Basis Versus Cash Basis Accrual Basis(权责发生制):Under this method, revenue is accounted for when it is earned. (A customer is received)

Cash Basis(现金收付制):Under this method, revenue is reported on the income statement only when cash is received.

9. the Regulatory Framework

  1. IFRS International Financial Reporting Standard
  2. US GAAP Generally Accepted Accounting Principle
  3. CAS China Accounting Standard