ACC1002 notes

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Fundamental Qualitative Characteristics
Relevance: Gives numbers that users need for decisions
Faithful Representation: Provides a true and fair view

Enhancing Qualitative Characteristics
Comparability: enables users to identify and understand similarities in, and differences among, items. Verifiability: Can check if the numbers are correct
Timeliness: The information is not stale or out of date
Understandability: Users can understand the information

Accounting principles

The cost (measurement / historical cost) principle is the general concept that you should initially record an asset, liability, or equity investment at its original acquisition cost. 

The full disclosure principle(充分揭示原则) states that you should include in an entity's financial statements all information that would affect a reader's understanding of those statements.

The revenue recognition principle states that, under the accrual basis of accounting, you should only record revenue when an entity has substantially completed a revenue generation process; thus, you record revenue when it has been earned. 

The matching (expense recognition) principle is one of the cornerstones of the accrual basis of accounting. Under this principle, when you record revenue, also record at the same time any expenses directly related to the revenue. Thus, if there is a cause-and-effect relationship between revenue and the expenses, record them in the same accounting period.

The materiality principle states that you are allowed to ignore an accounting standard if the net impact of doing so has such a small impact on the financial statements that a reader of the financial statements would not be misled.

Accounting assumptions

The going concern principle is the assumption that an entity will remain in business for the foreseeable future. 

The monetary unit principle states that you only record business transactions that can be expressed in terms of a currency.

The time period principle is the concept that a business should report the financial results of its activities over a standard time period, which is usually monthly, quarterly, or annually.

The business entity concept states that you must separately record the transactions associated with a business from those of its owners or other businesses.

Effective Internal Control

1. Management integrity
2. Competent and ethical personnel:
Selection/Good salaries/Training/Rotation
3. Establishment of responsibilities:
Organization chart – clear lines of authority, defined areas of responsibilities
Delegation of authority for key activities

Policies and Procedures
1. Proper authorization
2. Separation of duties
Operations from accounting
Custody of assets from accounting
Authorization of transactions from custody of assets
3. Control of documents and records
Adequate records of transactions (eg invoices, purchase orders, cheques, stocklists, journals and ledgers)
Proper control (pre-numbering invoices and receipts, lock and key, PC passwords) 4. Electronic and computer controls

1. Supervision of Employees (all levels)
Reduce temptation to steal or defraud company
2 Audits

Internal Control of Cash

1. Using a bank account

2. Separation of duties
Receiving vs paying cash
Physical handling of cash vs accounting
Accounting for cash receipts vs accounting for cash payments

3. Cash receipt controls
Physical controls (lock and key)
Deposit cash receipts daily
Counter-check cash receipts before depositing
Match receipts per cash registers with bank deposit slips

4. Cash payment controls
Approval for purchases to be separate from cheque-signing
Proper documents to support payments
Authority limits for cheque-signing to be strictly adhered to Two signatories for cheques

5. Bank reconciliation

+/- corrections of bank errors

­ +/- corrections of book errors
= Adjusted bank balance
= Adjusted...
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