The Accounting Information of System
The Personnel, procedures, devices, and records used by an organization to develop accounting information and communicate that information to decision makers
The accounting process
Accounting “links” decision makers with economic activities and with the results of their decisions.
Types of Accounting Information
Providing information about the financial resources, obligations, and activities of an economic entity that is intended for use primarily by external decision makers – ...view middle of the document...
For legal purposes, a sole proprietorship and its owner are considered to be one entity, but for accounting purposes they are considered to be two separate entities.
Money Measurment Concept Economic activity is measured in U.S. dollars, and only transactions that can be expressed in U.S. dollars are recorded.
Because of this basic accounting principle, it is assumed that the dollar's purchasing power has not changed over time. As a result accountants ignore the effect of inflation on recorded amounts. For example, dollars from a 1960 transaction are combined (or shown with) dollars from a 2009 transaction.
The Cost Concept The widely used principle of accounting for assets at their original cost to the current owner.
An assumption by accountants that a business will operate in the foreseeable future unless specific evidence suggests that this is not a reasonable assumption.
The significance of an item should be considered when it is reported. An item is considered significant when it would affect the decision of a reasonable individual.
It means that the company uses the same accounting principles or rules from year to year.
The Accrual Concept
Businesses are required to record and report revenue at the time it is earned and realized by the business, not when the cash for the revenue is received by the business. This method is known as accrual basis accounting. The purpose of this principle is to actually show what work has been completed and not what is to be done in the future.
implies that the economic activities of an enterprise can be divided into artificial time periods and can be genarted on time like yearly
Assets and revenue should be stated at their lowest values on the other side liabilites and expenses should be stated at their highest value.
Cash Base Accounting Transactions are recorded when cash is received or paid out
The accounting records of a business must be disclosed so that judgment about the financial status of a business can be easily made. However, the disclosure of accounting and financial information should not cause the business to accrue unreasonable expenses or cause erroneous opinions.
This principle allows for real time analysis of the expenses and revenues. Using this principle will show just how well the business has done financially and how effective it was. Somewhat like the Accrual Principle, expenses in this case can only be recorded and reported when revenue is to which such expenses are related was earned.
Revenue Recognition Concept
Requires companies to record when revenue is realized or realizable and earned, not when cash is received. This way of accounting is called accrual basis accounting
Introduction to Financial Statements
The piece of information send to...