APS审核会计复习资料

Financial accounting is a system that accumulates, processes and reports information about the financial performance of an entity. In this course, we mainly learned about the basic assumptions of accounting, qualitative characteristic of financial accounting information, and the elements of accounting. And we also learned how to read accounting statements.
Two methods of recoding transactions for a business
Cash basis accounting: An accounting method that revenues are recognized when cash is received and expenses are recognized when paid.
Accrual accounting: An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.
Basic Assumptions of Accounting
Economic entity assumption: it requires that the activities of the business entity must keep separate from those owners. The business must keep accounting records which only include accounting transactions relating to that business and exclude transactions relating to the owners.
A business entity or accounting entity can take many forms including a sole proprietor, partnership limited liability company. In the case of sole proprietor an individual owns the business, a company will have shareholders which own share represent their ownership. A partnership will have number of individual who own a percentage of business.
Going concern assumption: It assumes that the business has a long life and will not close or be sold in the immediate future.
Time period assumption: the business is measured on timely basis. For example 1 year, 3 months, 6 months.
Monetary unit assumption: the business transaction can be expressed in terms of money or monetary.
Qualitative characteristic of financial accounting information
Accounting information should be reliable.
Accounting information should be comparable. It means the information is measured and reported in a similar method for different companies.
Accounting information should be timely.
Accounting information should be understandable. It requires the information presented in financial report to be concise, complete, and clear.
Accounting elements
Asset: It is owned or controlled by a company that can used to generate revenues in the future. Assets accounts generally have a debit balance.
Current assets:
Cash
Account receivable: when you sell the products on credit, u will need to use account receivable. Notes receivable: a note is written to repay money.(can be long-term assets with a stated interest rate)
Prepaid expense: expenses that have been paid in advanced.
Inventory
Accounts receivable and notes receivable: the key difference between accounts receivable and notes receivable is that accounts receivable is the money owed by the customers whereas notes receivable is a written promise by a customer agreeing to pay the money in the future. The notes receivable can be short-term or long-term and charges interest. The company can transfer note receivable to the bank.
Non-current assets:
Fixed assets: property, plant, equipment(PPE)
Intangible assets: they are recognized at fair value when they are acquired, and need to amortize over their useful lives.
Goodwill doesn’t need to amortize but need to test for impairment.
Long-term investments: they are generally not sold or convert into cash within 1 year.
Liabilities:
Liability is an obligation that arises in a past event. It’s a probable future sacrifices of economic benefits. Liability accounts are a credit balance.
Current liabilities:
Account payable: when you buy the inventory and need to pay in a period of time. This obligation is referred to account payable.
T ax payable
Salaries payable
Interest payable
Long-term liabilities:
Bond payable: many companies will issue bonds to the public to finance for the future growth. A company needs to pay the bondholders the face amount and interests on the maturity date. Unearned revenue: the customer pays in advanced for it purchase. The company must recognize it as liability because it owes customer for the goods or services that the customer paid for.
Equity: is the ownership interest in a company. If this is in a company that is not publicly traded it is called private equity. It includes the capital invested by the owners and any retained earnings t he business has. It is the amount that would be return to shareholders if all the company’s assets were liquidate and all its debt repaid.
Components of shareholder’s equity:
1. Capital stock
2. Additional paid-in-capital
3. Retained earning (earned capital of a company )
Two main sources: the first is from the money initially invested in a company, along with the additional investment made later. A second source is retained earnings that the company is able to build over time through its business. These earnings, net income from operations can be reinvested back to the company.
Paid-in capital: It is used in the limited liability company. It refers to the capital that the investor invested.实收资本
Additional paid-in capital: excessive amount above the par value that shareholders contribute to the company. E.g. an investor pays $10 for a $5 par value stock. $5 would be recognized as additional paid-in capital.
Capital sock: it is used in the joint stock company.股本
Retained earnings: the earnings are not distributed to the shareholders and are retained for future operation. (undistributed profit and surplus reserve) 未分配利润,盈余公积
Income
Income refers to an increase in economic benefit during the accounting period in the form of an increase in asset or a decrease in liability that results in increase in equity, other than contribution from owners.
Income encompasses revenues and gains.
Revenues refer to the amounts earned from the company’s ordinary course of business such as professional fees or service revenue for service companies and sales for merchandising and manufacturing concerns.
Gains come from other activities, such as gain on sale of equipment, gain on sale of short-term investments, and other gains.
Income is measured every period and is ultimately included in the capital account. Examples of income accounts are: Service Revenue, Professional Fees, Rent Income, Commission Income, Interest Income, Royalty Income, and Sales.
Expense
Expenses are decreases in economic benefit during the accounting period in the form of a decrease in asset or an increase in liability that result in decrease in equity, other than distribution to owners.
Expenses include ordinary expenses such as Cost of Sales, Advertising Expense, Rent Expense, Salaries Expense, Income T ax, Repairs Expense, etc.; and losses such as Loss from Fire, Typhoon Loss, and Loss from Theft. Like income, expenses are also measured every period and then closed as part of capital.
Net income refers to all income minus all expenses.
Historical cost
It is the original cost of an asset, as recorded in the entity’s accounting records. We should record an asset, liability at its original cost. According to the accounting standard, historical cost requires some adjustments as time passes. Depreciation expense is for the long-term assets. If the value of an asset is below its depreciation adjusted cost, one must record impairment.
Book value = original cost – depreciation – impairment
Book value is original purchase cost, adjusted for any changes, such as impairment and depreciation.
Fair value
Fair value is the price that two parties are willing to pay for an asset or liability in an active market. It is the sale price agreed to by buyer and seller. Marketable investments are record as fair value. Method to acquire fair value:
Market approach: use the price for similar assets and liabilities in actual market.
Income approach: use the estimated discounted cash flow or earnings.
T-account
It’s the most common way to display an account. An account records all the changes to a specific asset, liability, or equity item.
The left side of the T- account is debit and the right side is credit. The ending balance is calculated in the bottom. It also has its title that displays the name of the account.
Double-entry accounting
Assets=Liabilities + shareholder’s equity
The transaction will be recorded at least two accounts, debit and credit. Debit must always equal to Credit in every transaction and that the accounting equation can always balance.。