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Kultur Dokumente
International Accounting
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Introduction to Accounting
Accounting is (generally) made out to be a complex
subject however the essence of accounting is
simple. Accountants job is quite simple to keep
track of:
Assets, and
Equities (i.e. equity in the assets).
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Assets Definition
Something that is needed in order to run a/the
business, provides a benefit to the business (now
and in the future).
Something that is owned by the business.
Business (not necessarily owns 100% of the asset) has
legal title to the asset.
Examples of Assets:
Production equipment;
Office buildings;
Equity Definition
Represents ownership in the assets.
In case of a building it would be the down-payment;
-4-
Assets
Owner(s)
In order to start the business, the owner may make a contribution to the business of
items like: cash; production equipment; buildings, office equipment, etc.
A contribution needs to be accounted for / recorded as a business transaction.
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Whatever is the value of the assets ... must be equal to the sum total of the
claims of creditors and owners.
Assets
Lender(s)
-7-
Owner(s)
Assets
Assets
Lender(s)
Liabilities
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Owner(s)
ShareholderEquity
Assets;
Liabilities;
Shareholders Equity
A/R
Office
Supplies
=
PPE
Computer
Workstation
-9-
Liabilities
A/P
Debt
Shareholder's
Equity
JohnDoe
Capital
Transactions (I)
Transaction impacting Shareholders Equity:
1. Shareholder (Winston Wolfe) starts a consulting business by contributing
$20,000 of cash and $1,000 office supplies to the business;
2. WW contributes his workstation computer (worth $2,000) to the business;
3. WW performs a service job for a Customer A and receives $500 from him.
4. WW performs another service job for a Customer B and is promised to be paid
$700 in the near future (no payment received yet).
Assets
Cash
Transaction1
Transaction2
Transaction3
Transaction4
Balance
A/R
+20,000
Office
Supplies
+1,000
=
PPE
Computer
Workstation
Liabilities
A/P
+
+
Debt
+2,000
+500
20,500
+700
700
1,000
2,000
-10-
Shareholder's
Equity
WinstonWolfe
Capital
+21,000
+2,000
+500
+700
24,200
Revenue Recognition
Under Generally Accepted Accounting Principals (GAAP) and under
International Financial Reporting Standards (IFRS) ... rules of
accrual accounting must be followed.
1. Revenues are to be recognized (recorded) when they have been earned;
2. It does not matter whether cash for services performed or goods delivered has
been received yet or not.
3. Revenues are to be recognized the moment invoice is issued;
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CommonStock
Expense(s)
Revenue(s)
+21,000
+2,000
23,000
-12-
+500
+700
1,200
Transactions (II)
Transaction impacting Shareholders Equity:
5. Shareholder (Winston Wolfe) takes $3,000 out of the business to use for home
improvement work around his house.
6. WW pays the $200 monthly business internet bill.
This is for the past months internet usage; not any future usage.
It is an expense incurred and not a prepayment for future usage (asset).
7. WW receives a $250 council tax bill for the month just ended and is payable in
two weeks time (no payment made yet).
8. $300 of office supplies are used up (portion of an asset has become an expense).
Assets
Cash
Balance
Transaction5
Transaction6
Transaction7
Transaction8
Balance
20,500
3,000
200
Office
Supplies
700
1,000
A/R
=
PPE
Computer
Workstation
2,000
=
=
Liabilities
A/P
+
+
Debt
0
+250
17,300
700
300
700
2,000
-13-
250
Shareholder's
Equity
WinstonWolfe
Capital
24,200
3,000
200
250
300
20,450
Expense Recognition
Under Generally Accepted Accounting Principals (GAAP) and under
International Financial Reporting Standards (IFRS) ... rules of
accrual accounting must be followed.
1. Expenses are to be recognized (recorded) when they have been incurred;
2. It does not matter whether cash for services received or goods delivered has
been made yet or not.
3. Expenses are to be recognized the moment invoice is received;
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Transactions (III)
Transaction impacting Assets only:
9. WW purchases office supplies for $1,500 of company cash.
10. WW sells $200 worth of office supplies to another party.
11. WW collects $500 worth of A/R balance from the transaction when services
were performed on account.
Assets
Cash
Balance
Transaction9
Transaction10
Transaction11
Balance
17,300
1,500
+200
+500
16,500
Office
Supplies
700
700
+1,500
200
500
200
2000
A/R
=
PPE
Computer
Workstation
2,000
2,000
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Liabilities
Shareholder's
Equity
250
WinstonWolfe
Capital
20,450
250
20,450
A/P
Debt
Transactions (IV)
Transaction impacting Liabilities:
12. WW purchases another computer workstation for $2,000 and agrees to pay at
a later date (on account).
13. $3,000 is borrowed from a bank.
WW (as a director of the company) signed a promissory note to repay the debt at a later
date.
Interest will be charged on this loan as long as it is outstanding.
Assets
Cash
Balance
Transaction12
Transaction13
Transaction14
Balance
16,500
+3,000
250
19,250
Office
Supplies
200
2000
A/R
=
PPE
Computer
Workstation
2,000
+2,000
Liabilities
A/P
250
+2,000
WinstonWolfe
Capital
20,450
20,450
Debt
0
Shareholder's
Equity
+3,000
200
2000
4,000
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250
2000
3000
A/R
+20,000
Office
Supplies
+1,000
=
PPE
Computer
Workstation
Liabilities
A/P
Debt
+2,000
+500
+700
3,000
200
+250
1,500
+200
+500
300
+1,500
200
WinstonWolfe
Capital
+21,000
+2,000
+500
+700
3,000
200
250
300
500
+2,000
+3,000
250
19,250
Shareholder's
Equity
+2,000
+3,000
200
2000
4,000
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250
2000
3000
20,450
20,450
Shareholder'sEquity
Dividends
Transaction1
Transaction2
Transaction3
Transaction4
Transaction5
Transaction6
Transaction7
Transaction8
Transaction9
Transaction10
Transaction11
Transaction12
Transaction13
Transaction14
Balance
CommonStock
Expense(s)
Revenue(s)
+21,000
+2,000
+500
+700
3,000
200
250
300
3,000
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23,000
750
1,200
Financial Reporting
At the end of an accounting period, financial information needs to be
reported to interested parties.
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Balance Sheet
At the end of an accounting period, financial information needs to be
reported to interested parties.
WinstonWolfeServicesInc.
BalanceSheet($s)
December31,20X5
Assets
Cash
A/R
OfficeSupplies
PPE
ComputerWorkstation
TotalAssets
Liabilities
A/P
Debt
TotalLiabilities
19,250
200
200
0
4,000
25,450
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2000
3000
5,000
Shareholder'sEquity
WinstonWolfeCapital
20,450
TotalLiabilities
&Shareholder's
Equity
25,450
Income Statement
At the end of an accounting period, financial information needs to be
reported to interested parties.
WinstonWolfeServicesInc.
IncomeStatement($s)
FortheyearendedDecember31,20X5
Revenue(s)
ConsultingServiceRevenues
Expense(s)
InternetExpense
200
CouncilTaxExpense 250
SuppliesExpense 300
TotalExpenses
NetIncome
1,200
750
450
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WinstonWolfeCapital,December31,20X4
Add:StockIssuance
23,000
Add:NetIncome
450
Total
23,450
3,000
Subtract:PaymentofDividends
IncreaseinShareholder'sEquity
20,450
WinstonWolfeCapital,December31,20X5
20,450
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If a corporation produces a net loss for the period, then this loss decreases the
corporation's retained earnings balance.
If the balance of the retained earnings account is negative it may be called
retained losses, accumulated losses or accumulated deficit.
Retained earnings and losses accumulate from one year to the next.
Retained earnings are reported as part of the shareholders equity section of
the corporation's balance sheet.
Net accumulated losses may lead to negative shareholders' equity, also known
as shareholders' deficit.
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WinstonWolfeCapital,December31,20X4
Add:StockIssuance
23,000
Add:RetainedEarnings
2,550
Total
20,450
WinstonWolfeCapital,December31,20X5
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20,450
A/R
Office
Supplies
=
PPE
Computer
Workstation
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Liabilities
A/P
Debt
Shareholder's
Equity
JohnDoe
Capital
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