Global Strategy

2013 Accounting Outline

September 9

Chapter 1: Introduction

* Why we need of accounting?

* Business background:

* Change of transportation and communication makes the nature of the human interaction totally differently.

* It also creates problem:

(1) Requirement for recording of business which can be understandable and readable by people who need it; and

(2) For the purpose of issuing debts

* What is the core idea of accounting?

* System of recording – recording of transaction (like bean counter)

* So that independent party can verify the numbers of the financial data.

* Don’t confused with different systems (i.e. financing accounting and tax accounting), even though the language is similar.

* Historic Background

* 1914: Started imposing income tax – Congress passed an accounting standard for business recording.

* 1920: Economic booming era — Market expanded (giant companies, stock exchange), but there was no law. Government started to set up regulation. i.e. 1934 Securities Act — every public company need to public its financial information.

* GAAP – General Accepted Accounting Principle

* Is GAAP a law? Not clear – Congress didn’t pass it. Congress just asks SEC to require all the public companies to comply GAAP. Congress passed and promulgated the GAAP by profession requirement. If an accountant violated GAAP, he can be put into jail.

* Basic concepts

* Value: Market value, component value, subject value……all are right, depend on the context.

* Four important characters: four fundamental principal of GAAP

* Relevance: in timely fashion

* Reliability: free from error and bias (accurate and can be verified by independent third party)

* Comparability: able to comparable with other entities (compare with others)

* Consistency: same accounting methods and procedure (compare to itself)

* Assumptions: (See P11)

* Separate entity - distinct from owner of the entity

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