Accounting is an information system that:

Identifies Records Communicates the economic events of an organization to interested users

Object of accounting:
providing information about the status and size of material and financial resources owned or controlled by economic entities

providing information about the performances (financial results) of economic entities

providing information about entity relationships to owners and third parties (creditors)

Object of accounting:
Accounting provides companies financial situation at period end in some form generally accepted Balance Sheet Accounting equation which reflects the situation of an organizational stays always in balance:
BALANCE SHEET Material and financial resources Material and financial resources Funding sources

Funding sources

Assets

Liabilities

Equity

Object of accounting:
Assets Material and financial resources = cash, buildings, lands, that belong to company

Funding sources = own funding sources (from shareholders) + attracted funding sources outside the company (from banks, suppliers)

Equity

Liabilities BALANCE SHEET

ASSETS

EQUITY (own funding resources) LIABILITIES (attracted funding resources)

Assets:
Assets
- are economic resources owned by business/company

There are 2 categories of assets:

Long-term assets Curent assets

Long-term assets:
Long-term assets:
- are to be held for many years (more than 1 year) and are not intended to be disposed of in the near future

There are 3 categories of long-term assets:

Intangible assets Fix assets Long term investments

Intangible assets:
Caracteristics:
- lack physical substance and usually are very hard to evaluate - include patents, copyrights, franchises, trademarks, trade names

Fix assets:
Caracteristics:
- are those that have a physical substance and can be touched - includes asset like land, buildings, machinery, furniture

Long-term investments:
Caracteristics:
- are amounts of money invested on long-term placements - includes bonds, common stock, or long-term notes

Curent assets:
Caracteristics:
- are represented by cash and other assets expected to be converted to cash, sold, or consumed either in a year or in the operating cycle Items:
Inventory trading these assets is a normal business of a company Receivables total amount of uncollectable accounts from costumers Short-term investments include securities bought and held for sale in the near future to generate income on short-term price differences Cash and cash equivalents it is the most liquid assets, which includes currency

Inventory:
Caracteristics:
- is a list for goods and materials, or those goods and materials themselves, held available in stock by a business Items:
Raw materials - materials and components scheduled for use in making a product Work in process (progress), WIP - materials and components that have begun their transformation to finished goods. Finished goods - goods ready for sale to customers. Goods for resale - Good purchased for resale by a company

Resume: ASSETS
LONG TIME ASSETS (> 1 year) - Intangible assets - Fix assets - Long term investments

CURRENT ASSETS (< 1 year) - Inventory - Receivables - Short term investments -Cash and cash equivalents

Exemples: ASSETS

- SAP or ORACLE soft - position of the shop in the centre vile - the land owned by company - stock bought for long time - wood (for a company who produce furniture) - chair & table (for a company who produce furniture) - stock bought for short time - the building where the company produce goods - the equipments who produce finished goods - cash in bank - money to get for suppliers

Equity and Liabilities

What equity is?

also called:
shareholder's equity or net worth or book value

represent ownership interest in a corporation in the form of common stock or preferred stock the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses) represent the difference between total assets and total liabilities

What equity is?

Include: - Share Capital - Profit/loss for the year - Legal reserves - Retained earnings

What share capital is?

Def: - The portion of a company's equity that has been obtained (or will be obtained) by trading stock to a shareholder for cash or an equivalent item of capital value *** The amount of share capital a company has can change over time because each time a business sells new shares to the public in exchange for cash, the amount of share capital will increase - Total amount of cash and other assets paid in to the corporation by stockholders in exchange for capital stock.
Share capital = Number of common shares * Book value/share

Ownership Rights of Stockholders

A Stock Certificate

Issuance of Stock
A corporation can issue common stock: - directly to investors or - indirectly through an investment banking firm (brokerage house).
Direct issue is typical in closely held companies. Indirect issue is customary for a publicly held corporation.

*In an indirect issue, the investment banking firm may agree to underwrite the
entire stock issue

What profit is?

Def: - The positive gain from an investment or business operation after subtracting for all expenses - The difference between revenue and expenses
Gross profit = Net sales Cost of goods sold Net profit = Profit After Tax

*** Note that the words earnings, profit and income are used as substitutes

What loss is?

Def: - The company's expenses exceed its revenues Net Loss = Expenses Revenue

*** Note that the words loss and net loss are used as substitutes

What reserve is?

Def: - legal reserve fund from profit - many legislations require creation of the fund as a percentage of profits (in Romania 5% from gross profit but no more then 20% of share capital)

What retained earning is?

Def: - retained earnings refers to the portion of net income which is retained by the corporation from one year to the next year - retained earnings is the part of the company profit which is not distributed to its owners

Liabilities
Def: - an obligation of an entity, arising from past transactions or events, the settlement of which may result in the transfer or use of assets (cash) Categories: - Current liabilities - Long-term liabilities

Current Liabilities
Def: - liabilities which are reasonably expected to be liquidated (paid) within a year
Categories: - Accounts payable - are ordinarily debts to suppliers (goods, services) - Accrued liabilities - are obligations for goods and services provided to a company for which invoices have not yet been received - Unearned Revenues (advances from customers) are a company receives cash before a service is received (airline sells a ticket for future flights) - Short - term borrowings (notes) money received (something) from somebody (banks or other creditors) temporarily, expecting to return it

Long-term Liabilities
Def:
- Obligations that are expected to be paid after one year

Include:
Bonds - a bond is like a loan: the issuer is the debtor, the holder is the creditor, and the coupon is the interest - Leasing liabilities - a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of periodic payments - Long - term borrowings (notes) - money received from somebody (banks or other creditors) for more than 1 year, expecting to return it *** Long-term notes may be secured by a mortgage that pledges title to specific assets as security for a loan

Accounting principles

The mains principles operating in accounting area: - Double posting principle

- Double entry principle

Double posting principle

All accounting elements are presented from 2 points of view: - one who show the economic materiality (assets)
- other who show the provenience (equity and liabilities)

The tool used to apply the double posting principle is the BALANCE SHEET Balance sheets are usually presented with two sections balancing (Assets vs. Equity and Liabilities)
BALANCE SHEET Assets Equity Liabilities

Balance sheet
-A balance sheet is often described as a instant-picture of a company's financial condition
-A standard company balance sheet has three parts:
- assets, - liabilities and - ownership equity

Balance sheet
BALANCE SHEET Long-term assets Intangible assets
patents, trademarks, and goodwill

Share capital

Legal Reserve
Profit (loss) for the year Retained earnings

Fixed assets Property, plant and equipment Longterm investments

bonds, common stock, or long-term notes

Equity

Current assets Assets Inventory

Raw materials, Finished goods, Goods for resale

Longterm liabilities
Long-term Borrowings

Leasing liabilities

Receivables
Trade receivables and other receivables

Current liabilities
Trade and other payables

Liabilities

Short-term investments Derivative financial instruments Cash and cash equivalents

Tax liabilities Short-term borrowings Unearned Revenues

Balance sheet
Pharmaceutical Factory: zinc for preparing medicine aspirin pill chemical preparing technology aspirin patent buildings for production contributions from shareholders cash bank borrowings trademarks money to collect from costumers money to pay to suppliers cash in banks taxes to pay profit of the year past loss 40.000 50.000 100.000 70.000 80.000 100.000 10.000 200.000 30.000 50.000 50.000 20.000 50.000 70.000 20.000

Please fill the balance sheet!!!

BALANCE SHEET Long-term assets Intangible assets
patents, trademarks, and goodwill

Equity
Share capital Legal Reserve Profit (loss) for the year Retained earnings

Fixed assets Property, plant and equipment Longterm investments

bonds, common stock, or long-term notes

Current assets Inventory

Raw materials, Finished goods, Goods for resale

Longterm liabilities
Long-term Borrowings

Leasing liabilities

Receivables
Trade receivables and other receivables

Current liabilities
Trade and other payables

Short-term investments Derivative financial instruments Cash and cash equivalents

Tax liabilities Short-term borrowings Unearned Revenues

Current year: Profit or loss?

Pharmaceutical Factory: Magnesium for preparing medicine Strepsils pill contributions from shareholders stocks from intergroup companies bank borrowings money to collect from costumers Technical equipments Strepsils patent Production Hall money to pay to suppliers cash in banks taxes to pay profit of the year past 100.000 250.000 300.000 50.000 300.000 150.000 200.000 100.000 100.000 250.000 50.000 50.000 100.000