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COURSE I - Wellcome to

Accounting Area

Content:
1. BUSINESS ENTITIES
2. FINANCIAL ACCOUNTING AND MANAGERIAL
ACCOUNTING
3. THE REGULATION OF ACCOUNTING IN
ROMANIA
4. ACCOUNTING AND BOOKKEEPING
5. USERS OF FINANCIAL INFORMATION
6. THE OBJECTIVE OF FINANCIAL
STATEMENTS
7. THE ELEMENTS OF FINANCIAL STATEMENTS

Business entities

A sole proprietorship
A partnership
Limited companies
A private company
A public company

Financial accounting and


managerial accounting
Financial Accounting
o

regulated;

mainly
concerned
performance;

Managerial Accounting
o

not regulated;

past

mainly concerned with predictions,


includes future expectations of the
management team;

historical financial statements (past


events), disclosed at year end;

a budget system based on historical


information but also on predictions,
frequent reporting, not disclosed;

prudence is enforced: providing for


all potential losses, but recording
revenues only when they are
earned.

relevance is enforced: revaluations,


changes of depreciation rates (flexibility
in working with historical records).

with

Objectives of bookkeeping

Bookkeeping is the process of maintaining a clear, concise and


permanent record of all transactions as they occur, to assist the
owner/s of the business to ascertain:

amounts owing to the business by debtors

amounts owed to creditors

amounts of losses and gains in a particular accounting period and


the reasons for these
flow of cash and goods, both into and out of the business
nature and amount of what the business owns or what is owed to
the business (assets)
nature and amount of what the business owes (liabilities)
the amount of owners equity (capital, proprietorship) that the
owner has invested in the business
the overall financial standing of the business at a given date.

Particular purposes of
accounting
to help users of accounting information make
informed decisions;
to prepare financial reports on a regular
basis;
to influence the decisions of users of the
information produced.
Accounting seeks to satisfy the needs of a wide
range of users. In relation to a particular
business, there may be various groups who are
likely to have an interest in its financial health.

Users of financial
information

investors
employees
lenders
suppliers
customers
governments
the public

Financial statements

Balance sheet financial position


Income statement financial
performance
Cash flows statement
Statement of changes in equity
Notes and policies

Elements of financial
statements
An asset - a resource controlled by an enterprise. The
resource should came from a past transaction or event
and is accompanied by an expectation of an inflow of
future economic benefits. All three aspects control,
origin and expectation are necessary to define it.
A liability - present obligation of an enterprise. The
obligation should originate in a past transaction or event
and entail the expectation of an outflow of economic
benefits. Again, to define a liability, the same three
features are required: existence, origin and expectation.

Equity is the owners residual claim to the assets


or the residual interest in the assets of an
enterprise after deducting all its liabilities. Equity is
sometimes called net assets.
Income represents increases in economic
benefits that augment equity and are not
contributions from owners. If we refer to the
algebraic formula above, equity expands when
assets increase or liabilities decrease as part of the
enterprises operations or from other events.
Expenses are decreases in economic benefits that
reduce equity and are not distributions to owners.
Equity declines when assets decrease or liabilities
increase as a result of production activities,
development of the business or from other events.