Accounting Summary | Course Paper

International Accounting Summary for the exam

– Accounting: System for measuring business activities, processing of information into reports

and making the findings available to decision-makers

– These reports are the financial statements organized and regulated by national and

international standards in order to ensure unified and comprehensive information serving as an

effective tool to measure the

➔ financial performance as a continuous cycle of measurement of results and

➔ reporting of results to decision makers

History of Accounting

– Accounting: Traced back to ancient times in China, Babylonia, Greece, Egypt

→ Used to keep records regarding the cost of labor, materials used in building

– Accounting grew in the same time as marketing activities did (in particular with the industrial

revolution since mass production rose)

– Government was also responsible for accounting developments:

→income tax brought the concept of “income statement”

→Different other decision referring to health, economic planning, social rights that need

accurate & reliable information

What is Accounting for?

→Organizing→analyzing→communication

= Financial information that is used for decision-making

For Who?

– Internal users:

Internal in the organization who use financial information to make day to day decisions

Typically managers & other employees who use financial information to confirm/justify past results

and help make adjustments for future activities

External users:

Outside the organization who use the financial information to make decisions or to evaluate an entity’s

performance

→e.g. investors, financial analysts, loan officers, governmental auditors, stakeholders

– Financial statements include: Income Statement, Statement of Owners Equity, Balance Sheet,

Notes & Statement of CF’s & Disclosures

→ ensure that information is consistent from period to period & can be compared to other

organizations

→ every activity that occurs has an associated cost or value and is known as transaction

– The accuracy of any transaction depends in the ability to evaluate it reliably (principle of

prudence)

The GAAP

– They are the common set of rules, standards, and procedures that traded companies

must follow when composing their financial statements

– They are specific to each countries

– At international level, the IFRS are recognized as the international language for the

financial statements

Stakeholders interested in accounting:

– Stockholders = want to make sure of the continuity of the business of the entity, its good

performance (income statement), ensuring validity of their investment

– Creditors & lenders: use financial information to make decisions: will the funds be

repaid by the borrower? The longer the money is borrowed, the higher the risk

involved. Are therefore interested in patrimonial/ asset position (balance sheet) &

financial position (income statement)

– Government & regulatory agencies: financial performance (income statement) in