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Financial Accounting
Mark Fitzpatrick

-business entity concept-the accounting for a business should be kept separate from personal affairs of the owner and of other businesses -continuing (or going) concern concept-a business will continue to operate unless stated otherwise -principle of conservatism-accounting should be fair and reasonable -objectivity principle-accounting will be recorded based on objective evidence (i.e. source documents) -revenue recognition convention-revenue must be recorded at the time a transaction is complete -time period concept-accounting takes place over periods of time called fiscal periods -matching principle-expense items must be recorded at the same time as the revenue they helped earn -cost principle-accounting for purchases must be at the cost price to the purchaser -consistency principle-a business must use the same accounting methods and procedures from period to period -materiality principle-accountants must include any information that might be considered important to users of financial information -full disclosure principle-all information needed to fully understand a company’s financial statements must be included with those financial statements 2 Books -book of accounts-ledger -book of original entry-journal SRO-self regulated organization Fundamental Accounting Equation- A=L+OE B/S and I/S -B/S- photo (Ansel Adams) -I/S- movie (James Cameron) Source Documents-objective evidence Arm’s Length Transaction -buyers and sellers of a product act independently and have no relationship with each other -manipulating price unfairly LIFO/FIFO -LIFO-last in first out -FIFO-first in first out (canada uses this) Dr/Cr Account Increase Decrease Assets Debit Credit Liabilities Credit Debit Capital Credit Debit Revenue Credit Debit Expense Debit Credit Drawings Debit Credit Correcting Trial Balance -transposition error-changing the order of digits from one place to another (135.4—>134.5) -decimal point error-putting the decimal in the wrong spot (1.91—>19.1) Shotgun Clause -partner 1 asks to buy company, partner 2 can say yes or no -if they say yes then partner 2 sells the company to partner 1 -if they say no then partner 1 sells the company to partner 2 Window Dressing, Cooking the Books, Fudge -window dressing-making something look better, legal -cooking the books-makes books look better, illegal -fudge-solve for missing variable by putting in fake number, illegal Haircut-sell something with a loss because you want to get rid of it Transparency-detailed Alberta Kills Ducks-oil sands Double Taxation-being taxed twice (i.e. buy goods pay tax, sell goods pay tax) Co
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