accounting

Examples of accounting in the following topics:

• Closing the Cycle

  • Closing the revenue accounts—transferring the balances in the revenue accounts to a clearing account called Income Summary.
  • Closing the expense accounts—transferring the balances in the expense accounts to a clearing account called Income Summary.
  • Closing the Income Summary account—transferring the balance of the Income Summary account to the Retained Earnings account (also known as the capital account).
  • Closing the Dividends account—transferring the balance of the Dividends account to the Retained Earnings Account
  • The Dividends account is also closed at the end of the accounting period.

• Managerial Accounting

  • Management accounting is one of the most interesting and broad-minded applications of the accounting perspective.
  • When looking at traditional financial accounting, managerial accounting differs in a few key ways:
  • Financial accounting is generally historical, while managerial accounting is about forecasting.
  • Financial accounting looks at the company holistically, while financial accounting can zoom in at various levels (i.e. product level, division level, etc.)
  • Lean Accounting: During the days when the Toyota Production System was just becoming celebrated as a leaner process, accountants began to consider the restrictions of traditional accounting methods on lean processes.

• Write-Offs

  • When a sale is made on account, revenue is recorded along with account receivable.
  • The portion of the account receivable that is estimated to be not collectible is set aside in a contra-asset account called Allowance for Doubtful Accounts.
  • The credit is to the Accounts Receivable control account in the general ledger and to the customer's account in the accounts receivable subsidiary ledger.
  • Debiting the allowance account and crediting Accounts Receivable shows that the firm has identified Smith's account as uncollectible.
  • If the company wrote off any uncollectible accounts during 2009, it would debit Allowance for Uncollectible Accounts and cause a debit balance in that account.

• Consumers of Accounting Information

  • Most of a company's stakeholders consume its accounting information in one form or another.
  • Early accounts served mainly to assist the memory of the businessperson, and the audience for the account was the proprietor or record keeper alone.
  • This development resulted in a split of accounting systems for internal (i.e., management accounting) and external (i.e., financial accounting) purposes and, subsequently, also in accounting and disclosure regulations and a growing need for independent attestation of external accounts by auditors.
  • Because these users have different needs, the presentation of financial accounts is very structured and subject to many more rules than management accounting.
  • The body of rules that governs financial accounting in a given jurisdiction is the Generally Accepted Accounting Principles, or GAAP.

• Valuing Accounts Receivable

  • These uncollectible accounts are called bad debts.
  • Recognizing the bad debt requires a journal entry that increases a bad debts expense account and decreases accounts receivable.
  • Under the allowance method, an adjustment is made at the end of each accounting period to estimate bad debts based on the business activity from that accounting period.
  • Accounts receivable is a control account that must have the same balance as the combined balance of every individual account in the accounts receivable subsidiary ledger.
  • Since the specific customer accounts that will become uncollectible are not yet known when the adjusting entry is made, a contra-asset account named allowance for bad debts, which is sometimes called allowance for doubtful accounts, is subtracted from accounts receivable to show the net realizable value of accounts receivable on the balance sheet.

• Usage of Accounting Information

  • This development resulted in the division of accounting systems for internal (i.e. management accounting) and external (i.e. financial accounting) purposes.
  • Accounting that concentrates on reporting to people inside the business entity is called management accounting.
  • Accounting that provides information to people outside the business entity is called financial accounting.
  • The body of rules that governs financial accounting is called Generally Accepted Accounting Principles, or GAAP.
  • Explain the history of accounting and how accounting information is useful

• Double-Entry Bookkeeping

  • In the double-entry accounting system, each accounting entry records related pairs of financial transactions for asset, liability, income, expense, or capital accounts.
  • The rules for formulating accounting entries are known as "Golden Rules of Accounting".
  • The accounting entries are recorded in the "Books of Accounts".
  • Following this approach, accounts are classified as real, personal, or nominal accounts.
  • Real accounts are assets.

• The Responsibilities of Account Executives

• The Capital Account

  • The capital account acts as a sort of miscellaneous account, measuring non-produced and non-financial assets, as well as capital transfers.
  • There are two common definitions of the capital account in economics.
  • Instead, the capital account acts as a sort of miscellaneous account, measuring non-produced and non-financial assets, as well as capital transfers.
  • The capital account is normally much smaller than the financial and current accounts.
  • Like the financial account, a deficit in the capital account means that money is flowing out of a country and the country is accumulating foreign assets.

• Objectives of Accounting

  • The Financial Accounting Standards Boards Statements of Financial Accounting Concepts No. 1 states the objective of business financial reporting, which is to provide information that is useful for making business and economic decisions.
  • With these objectives in mind, financial accountants produce financial statements based on the accounting standards in a given jurisdiction.
  • Generally Accepted Accounting Principles refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards or Standard accounting practice.
  • They are progressively replacing the many different national accounting standards.The rules to be followed by accountants to maintain books of accounts which is comparable, understandable, reliable and relevant as per the users internal or external.
  • Describe the objectives of accounting, distinguishing between Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS)