International accounting standards 1 Flashcards
Transactions (znaczenie)
operacja gospodarcza
Accounting activities and users:
Identification
Recording
Communication
What does ,,identification” mean?
Transaction must be identified
What does ,,recording” mean?
Transactions must be recorded, calssified, and summarized
What does ,,communication” mean?
Accounting reports must be prepared and presented so that the users can analyze and interpret them
Internal users (znaczenie)
Użytkownicy wewnętrzni
External users (znaczenie)
Użytkownicy zewnętrzni
Examples of external users:
Investors
Creditors
They are primary users of financial statements
Examples of internal users:
Taxing authorities
Regulatory agencias (agencje regulacyjne)
Labor unions (związki zawodowe)
True or false: The three steps in the accounting process are identification, recording, and communication
True
True or false: Bookkeeping is a synonym of accounting
False
Tre or false: Accountants in an organization prepare and tell the users how to interpret financial reports of the business they work for.
True
True or false: Two most common types of internal users are investors and creditors
False
True or false: Managerial accounting activities focus on reports for internal users.
True
Financial accounting is regulated by …
standards
Primary accounting standard-setting bodies:
International Accounting Standards Board (IASB)
- Determines International Financial Reporting Standards (IFRS)
- Used in 130 countries
Financial Accounting Standards Board (FASB)
- Determines generally accepted accounting principles (GAAP)
- Used by most companies in the U.S.
Local parliaments/country standard setters
- Majority of countries have their own financial accounting regulations
- These are used mostly by businesses operating locally and/or not publicly traded
IFRS generally uses one of two measurement principles:
the historical cost principle or the fair value principle.
What is historical cost?
How much we paid.
Historical cost principle (or cost principle):
dictates that companies record assets at their cost. This is true not only at the time the asset is purchased, but also over the time the asset is held.
expanses (znaczenie)
koszt uzyskania przychodu
Fair value principle:
states that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability).
Fair value (znaczenie):
wartość godziwa
Main principles:
- relevance
- faithful representation
faithful representation (znaczenie):
zasada wiernego obrazu
relevance (znaczenie):
istotność
relevance means:
that financial information is capable of making a difference in a decision.
Faithful representation means:
that the numbers and descriptions match what really existed or happened— they are factual.
Two main assumptions are:
the monetary unit assumption and the economic entity assumption.
Monetary unit assumption means:
requires that companies include in the accounting records only transaction data that can be expressed in money terms.
assumption (znaczenie)
założenie
monetary unit (znaczenie)
Jednostka monetarna
Economic entity assumption means
requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities. Typical entity forms are proprietorship, partnership, corporation.
economic entity (znaczenie):
podmiot gosporarczy
proprietorship (znaczenie)
własność
partnership (znaczenie)
spóła osobowa
corporation (znaczenie)
korporacja
True or false: The historical cost principle dictates that companies record assets at their cost. In later periods, however, the fair value of the asset must be used if it is higher than cost
False
True or false: Relevance means that financial information matches what really happened; the information is factual
False
True or false: A business owner’s personal expenses must be separated from expenses of the business to comply with accounting’s economic entity assumption
True
Assets
Liabilities + (Owner’s) Equity
What are Assets?
resources a business owns
Liabilities:
claims against assets, i.e. existing debts and obligations. (payables, provisions)
a bribe
łapówka
Equity
the ownership claim on a company’s total assets
what are the types of assets?
- non-current (long-term) assets
- current (short-term) assets
Definition of assets
An asset is a present economic resource controlled by the entity as a result of past events
What are economic resources?
An economic resource is a right that has the potential to produce economic benefits
What are the types of liabilities?
- non-current (long-term) liabilities
- current (short-time) liabilities
What are liabilities?
Liabilities are defined as obligations of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision (rezerwa) of services or other yielding of economic benefits in the future.
Equity increases examples:
- investments by owners
- revenues
revenues (znaczenie):
przychody
Equity decreases examples:
- dividends paid
- expenses
What is Share capital/Common stock/Owner’s capital ?
describes the amounts paid in by shareholders for the ordinary shares they purchase
what are revenues?
are the gross increases in equity resulting from business activities entered into for the purpose of earning income. Revenues usually result in an increase in an asset.
what are expenses?
are the cost of assets consumed or services used in the process of earning revenue
what are dividends?
are distribution of cash or other assets to shareholders. They are not an expense
Accounting Information System (IAS):
The system of collecting and processing transaction data and communicating financial information to decision-makers.
Are the following events transactions:
1) Purchase of goods for sale
2) Hiring a new employee
3) Paying rent
4) Ordering new machinery to be delivered next year?
1) Yes
2) No
3) Yes
4) it depends
Transactions:
- change in financial position of the entity
- a source document
- must be recorded
- Each transaction must be analyzed in terms of its effect on the three components of the basic accounting equation and specific types of items within each component.
- The two sides of the equation must always be equal.
- The Share Capital and Retained Earnings columns indicate the causes of each change in the shareholders’ claim on assets.
assets =
liabilities + equity
equity =
share capital/common stock/ owner’s capital + retained earnings
retained earnings =
revenues - expanses - owner’s drawings/dividends
Companies prepare five financial statements from the summarized accounting data:
- (Comprehensive) Income statement
- Statement of financial position
- Statement of cash flows
- Statement of changes in equity
- Notes
(Comprehensive) Income statement
presents the revenues and expenses and resulting net income or net loss for a specific period of time.
Statement of financial position
reports the assets, liabilities, and equity of a company at a specific date. (Sometimes referred to as a balance sheet.)
Statement of cash flows
summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time.
Statement of changes in equity
summarizes presents the changes that happened in the composition and value of the shareholders’ equity for a specific period of time
Notes:
these are additional data in different forms that help to analyze and intepret the first four statements
Net income is computed first and is needed to determine the ending balance in …
retained earnings.
Net income, together with information on other changes in equity (mainly dividends paid) allows us to calculate the ending balance in retained earnings, which is needed in preparing the statement of …
financial position
The cash shown on the statement of financial position is needed in preparing the statement of …
cash flows
Structure of Income statement:
The income statement lists revenues first, followed by expenses. Then, the statement shows net income.
When revenues exceed expenses, there is a profit.
When expenses exceed revenues, there is a loss.
The income statement does not include investment and dividend transactions between the shareholders and the business in measuring net income.
Structure of statement of financial position
Lists assets at the top, followed by equity and then liabilities.
Total assets must equal total equity and liabilities.
Structure of statement of cash flows:
The statement of cash flows reports
the cash effects of a company’s operations during a period,
its investing activities, its financing activities,
the net increase or decrease in cash during the period, and the cash amount at the end of the period.
