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Going-concern (continuity) concept

Accounting System

There are five basic accounting assumptions for the accounting system which are:

Accounting System

Business entity concept

Business entity concept

Data recorded in an accounting system relates to an entity, that is, a specific business unit. An entity has an existence in its own rights, separate from its owners, creditors, employees.

Money measurement concept

Money measurement concept

Economic activities recorded in an accounting system are expressed in a common monetary unit: MXN pesos, USD, euros, etc.

Exchange-price (or cost) concept

Exchange-price (or cost) concept

Resources (assets) are recorded in an accounting system in monetary terms at their acquisition cost.

Going-concern (continuity) concept

Unless there is evidence of the contrary, the assumption is that a business entity will continue its operations into an indefinite future.

Periodicity (Time periods) concept

Periodicity (time periods) concept

The period of time chosen by a business entity to report the results of its economic activities through its financial statement (monthly, quarterly, every six months or annually)

External users of financial information (stakeholders)

Financial Statements

Financial statements are used by third parties for various reasons. These third parties may be managers, potential investors, customers, unions, government agencies, and the general public.

There are four basic financial statements, which are:

Balance Sheet

Balance sheet

An example of a Balance sheet:

Income Statement

Income statement

An example of Income statement:

Statement of Retained Earnings

Statement of retained earnings

An example of a statement of retained earnings:

Statement of Cash Flow

Statement of cash flow

An example of a Statement of cash flow:

Government Agencies

Special Reports

Government agencies are crucial in regulating and ensuring that businesses comply with laws and regulations while also reporting requirements.

Accounting systems provide information such as tax compliance (records of their reports of their tax liabilities), financial regulation (transparent financial information), business licenses and permits if applicable, etc.

Internal Users of Financial Information

Management info and reports

Managers use the financial information provided bi the accounting systems for various reasons, including strategic planning, budgeting and forecasting, performance evaluation, investment decisions, risk management, among others.

The most important aspects that the internal users of financial information need to see are Solvency and Profitability

Profitability

Profitability

It is the ability to gain income (It is reflected in the Income Statement).

Solvency

Solvency

It is the ability to pay debts as they become due (The Balance Sheet reflects the company's solvency)

Tax returns

Tax Returns

This information is used mostly by government agencies to assess and calculate the taxes owed by the company.

They also use it to audit and verify everything is in order, but if it's not, it's used to impose penalties and take legal measures to ensure tax compliance.

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