ACT1006 Summarised Study
Notes
Chapter 1 : Introduction to Accounting
1.1 Accounting the Language of Business
o The Aim of Accounting is to provide reliable and relvent financial information for decision
makers
o Accounting Process
o Identify
o Measure
o Record
o Communicate
1.2 Forms of...
,Chapter 1 : Introduction to Accounting
1.1 Accounting the Language of Business
o The Aim of Accounting is to provide reliable and relvent financial information for decision
makers
o Accounting Process
o Identify
o Measure
o Record
o Communicate
1.2 Forms of Ownership
o Sole Proprietor : Full responsibility, Limited resources
o Partnership: join forces with others, unlimited lability
o Company : Limited Liability, more responsibility
1.3 Introduction to Conceptual Framework / GAAP
o Conceptual Framework
o Conceptual framework : giuves guideance on accounting standards which guides
trsanction recording and statement preparation
o Purpose is to assist the IASB and to assist prepares and users of statements
o 4 Sections of the Conceptual Framework
o Objective of General Purpose Financial Reporting
Provide financial information and be usefull to stakehodlers
o Reporting Entity
Must be sizeable, economic influence, managers who arnt owners
o Qualatative Characteristics
Fundamental
Relevent
Faithfull
Enhancing
Comparability
Verifability
Timely
Understandability
1.5 Financial Statements
o Income Statement : shows net profit through revenue and expences
o Balance sheet : shows how Assests = Liabilties + owners Equity
o Changes in Equity : Shows total income, changes in equity such as adjustments to retained
earnings and chare capital movemnets and dividends
o Cash Flow Statement : Shows inflows and outlfows through operating, investing and
financing
1.6 Concepts and Qualitative Characteristics
o Monetary Priunciple : only money items can be presented
o Entity Concept : Entity separate from owner
o Accounting Period : one year
o Going Concern : Will continue operation
o Histoircal Cost : acquisition cost
o Full Discolusre : all events be known
, Chapter 2 : The Recording Process
2.3 Debits and Credits
o Debits : Increase Assets, Decrease Liabilites+ Owners Equity
o Credits : Decrease Assets , Increase Liabilites + OE
2.4 : Steps in the Recording Process
o Analyse each transaction in terms of effect on the accounting equation
o Enter transaction information in a journal and transfer to ledgers
o Prepare trial balance , adjusting entries, then adjusted trial balance
2.5-2.8 Jounal, Ledger, Posting, Trial Balance
o General JHournal provides a chronological order of all tranactions
o Ledger contains all of the accounts and truncations effecting them and their balance
o Posting is the process of transferring journal entries to ledger
o Trial Balance show shte balances of accounts transferred from ledgers
Chapter 3 : Accural accounting Concepts
3.1 Cash and Accrual Accoutning
o Cash Accounting truncations are recorered when the cash is received or paid and cash moves
o Accural Accunting records transactions in the periods they incur
3.2 Revenue and Expence Recongition
o Revenue Recognition is when it is probable that economic benfot will flow and are earned
o Expence resogntion is when the outflow of benefit is probable and when incurred
3.3 The Basics of Adjusting Entries
o Prepayments
o Prepaid Expences
o Revenue received in advance
o Accurals
o Accured Revenue
o Accured Expences
3.4 Adjusting entries for prepayments and accruals
o Prepayments
o Is when cash movement preceds the entity actually incurring or perfroming tasks
o Prepaid Expence
Business buys 1 years insurance for $1200
This is recorded as Dr Prepaid insurance, Cr Cash
After 1 month , the Adjusting Entry is :
Dr Insurance Exp $100, Cr Prepaid Insurance $100
o Unearned Service Revenue
On 2nd of Jan, client gives you $300 for 3 fitness lessons
Was Recordered as Dr Cash 300, Cr Unearned Revenue 300
On 31st of Jan, one of these vouchers has been used up
Adj Entry = Dr unearned revenue 100, Cr Service Revenue 100
o Accurals
o Is when the action proceeds the cash movement
o Accrued Revenue
o I am a salesperson and commission on a sale has been earned but not yet
received from client or recordered for $200
o When it is earned, Dr Commmison receivable $200, Cr Commision Revenue
o When it is received, Dr Cash 200, Cr Commision Recevable 200
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