This is the document I used to prepare myself for the exam for the module SMM249 Financial Reporting at City University London, where I achieved an 84. It covers accrual and cash accounting, inventory transactions, non-current assets, long-term liabilities, shareholders' equity, cash flow statement...
, Lecture 1 – Intro
Financial accounting:
- Outside people
- Helpful in attracting capital & monitoring management performance
Lecture 2 – Accounting Basics
Principles of accrual accounting:
- An attempt to measure firm performance in a particular period regardless of when
cash is exchanged
- Revenues and expenses are recognised when earned/incurred, NOT when money is
received/paid
- Revenue recognition:
o Earnings process substantially complete
o Cash collection reasonably assured
- Matching principle for expenses:
o Match efforts to the benefits generated
o Capitalize expenditure that will generate future period benefits; expense
when benefits are realized
o Recognize liabilities when efforts benefitting the current period require cash
payment in the future
Matching:
- Revenues earned by the business are matched with the expense incurred in earning
those revenues
- Expenses can be deferred until revenues are recognized, only if they satisfy the
definition of an asset
Deferrals and accruals:
1) Prepayment / deferred expense: expenses paid but not consumed (asset)
2) Unearned / deferred revenue/income: revenues/income received in cash but not
earned (liability)
3) Accrued expense: expenses consumed but not paid (liability)
a. Bill received accounts payable
b. No bill accrued expense
4) Accrued revenue/income: revenues/income earned but not received in cash (asset)
Impairment: an asset is impaired and impairment losses are incurred if there is objective
evidence of a loss event that has an impact on the future cash flows (negative asset
account) expense in I/S
Provisions: liabilities of uncertain timing or amount, f.e.
- Restructuring provisions
- Environmental provisions
- Decommissioning provisions
- Litigation and other legal claims
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