BASIC ACCOUNTING CONCEPTS

1
BASIC ACCOUNTING CONCEPTS

• Who or what is the financial report about?
• Entity (the Business)
• Separate from the personal lives of
  owners/managers/employees
•   MANAGERS
• ENTITY AUDITOR
• OWNERS
•  Conflicts of Interest, Ethics

2
Who needs to know?

• Owners
• Managers
• Employees
• Creditors
• Suppliers
• Customers
• Government ?

3
What is the purpose of the financial report?

• Demonstrate stewardship
• Earning income with and taking care of the
  estate of others
•  
• Demonstrate Condition
• Liquidity--pay the bills
• Solvency--sufficient owners' equity
• Earnings--sufficient income
•  

4
Related Issues

• Responsibility
• The report is the report of management, not the
  accountants, the auditors, or the government
• Disclosure
• Management's responsibility to disclose
  everything ". . .such as to not make the
  statements misleading.", complete without
  limitations.
• NOT. . .I met X and he was sober this time.

5
Related Issues

• Materiality
• Only and all important disclosures are made
• Not inconsequential details
•  Value
• Investment in, not value of company
• This is changing

6
Accounting Identity

• Everything we have came from somewhere.
• Where did our investment come from?
• Investment Sources
• Assets Borrowings Owners Invested Earned
• Assets Liabilities Stock sold Earnings
  Ret.
• Earnings Revenues Expenses
• Debits Credits