Immaterial items may not require their own journal entries.Ĭ. In most cases, GAAP makes the following assumptions:Ī.Ěssets are recorded at their historical cost (i.e., the price paid for them).ī. GAAP allows investors to understand and compare the financial health of different companies. Generally Accepted Accounting Principles (“GAAP”) are governed by the Financial Accounting Standards Board (“FASB”) in the United States.
Closing entries zero out Income Statement balances at the end of the period, and additional entries transfer the balances to the Statement of Retained Earnings.Ĩ.Ĝash Flow Statements show the flow of cash, as opposed to the Income Statement which typically shows accrual accounting.ĩ. Dividends are not expenses, and retained earnings are not the same as cash. Statements of Retained Earnings bridge the Balance Sheet and Income Statement. Income Statements are recordings over a period of time, typically one year or one quarter, showing income and expenses during that period of time.ħ. Accrual accounting more accurately reflects economic reality.Ĥ.Ěccounting has four basic financial statements:ĥ.ěalance Sheets are snapshots in time showing assets, liabilities, and owner’s equity at that moment.Ħ. In accrual accounting, the manufacturer records revenue in January. In cash accounting, the manufacturer records revenue in February. For example, assume a manufacturer delivers goods on January 15 to a buyer who doesn’t pay until February 15. Accrual accounting records revenues and expenses when they are accrued, regardless of when cash changes hands. Through algebra, the accounting equation can be rewritten as: Assets – Liabilities = Owner’s Equity.ģ.Ĝash accounting records revenues when received and records expenses when paid. This equation is always true with no exceptions. The Accounting Equation is ALOE: Assets = Liabilities + Owner’s Equity.
Key points:ġ.Ěccounting is the language of business.Ģ. Piper summarizes the fundamentals of financial accounting in less than 100 pages. 3.Ĝash accounting records revenues when received and records expenses when paid. Through algebra, the accounting equation can be rewritten as: Assets – Liabilities = Owner’s Equity.
Key points: 1.Ěccounting is the language of business. Objective Summary Piper summarizes the fundamentals of financial accounting in less than 100 pages.
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