Session 1

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Questions and Answers

What is the primary mission of accounting as defined by French GAAP?

To ensure compliance with tax obligations

To facilitate international financial comparisons

To serve as a historical record of the company (correct)

To provide accurate predictions for future revenues

Which body is responsible for issuing IFRS standards?

FASB

GAAP Board

ANC

IASB (correct)

Under which circumstances can non-listed groups in France select their accounting standards?

They are required to follow historical cost principles

Only IFRS must be used, no exceptions

They must comply with US GAAP exclusively

They may choose between IFRS and French GAAP (correct)

What is a key characteristic of IFRS in relation to national legal constraints?

It aims to be independent from national legal and tax constraints Signup and view all the answers

What distinguishes the principle of conservatism in IFRS from that in French GAAP?

IFRS does not emphasize conservatism as French GAAP does Signup and view all the answers

Which group primarily focuses on internal decision-making in the accounting process?

Managers Signup and view all the answers

What is the primary difference between financial accounting and management accounting?

Financial accounting focuses on external users, while management accounting focuses on internal users. Signup and view all the answers

What is a key purpose of the accounting process?

To provide summaries of financial statements Signup and view all the answers

What type of information do creditors primarily seek from financial statements?

Financial position and cash flows Signup and view all the answers

In the context of decision making among users of financial statements, which type of analysis would be most relevant for investors?

Stock investments planning Signup and view all the answers

Which basic function of financial accounting involves categorizing similar items into groups?

Classify Signup and view all the answers

What is the primary purpose of preparing financial statements in financial accounting?

To provide a faithful image of the entity's financial situation Signup and view all the answers

Which of the following roles is NOT typically a stakeholder in financial accounting?

Graphic designers Signup and view all the answers

Which component is essential in making economic decisions based on accounting information?

Financial analysis Signup and view all the answers

What does accrual based accounting primarily recognize?

Impact of transactions at the time revenues and expenses occur Signup and view all the answers

Which principle requires cautious preparation of accounts and anticipates potential losses?

Conservatism Signup and view all the answers

What is the mode of assessment for the course on understanding accounting information?

100% final exam Signup and view all the answers

What is the significance of the principle of separate economic entity in accounting?

It ensures the company's identity is distinct from its owners Signup and view all the answers

Which part of the course focuses on 'Preparing a Balance Sheet'?

Part 2 Signup and view all the answers

How is historical cost defined in accounting?

The original acquisition cost of an asset Signup and view all the answers

In the accounting definition presented, what is noted as a key element in closing financial data?

Presentation of financial statements Signup and view all the answers

What is considered the primary mode of learning outside the classroom in this accounting course?

Reading and replicating exercises Signup and view all the answers

What does the principle of matching in accounting periods ensure?

Revenues and expenses are assigned to the correct accounting period Signup and view all the answers

When does accounting conservatism recognize potential gains in financial records?

Only when they are realized Signup and view all the answers

What must be done for financial statements to correctly represent accounting periods?

Adjusting entries are needed for accurate period representation Signup and view all the answers

What is the primary distinction between accrual based and cash basis accounting?

Accrual basis recognizes revenues when earned, cash basis when cash is received Signup and view all the answers

What does the balance sheet primarily represent?

It offers a snapshot of the company's financial position at a specific date. Signup and view all the answers

Which statement is true about the income statement?

It details the company's revenues and expenses for a designated period. Signup and view all the answers

What is the primary purpose of the statement of cash flows?

To detail the sources and uses of cash during an accounting period. Signup and view all the answers

What is indicated by the equation 'Income = Excess of revenues over expenses'?

Income represents the financial performance after considering all expenses. Signup and view all the answers

What do notes in financial statements primarily provide?

Additional information to clarify financial figures and methodologies. Signup and view all the answers

Which of the following best describes the relationship between revenues and expenses on the income statement?

Excess revenues indicate a profit, while excess expenses indicate a loss. Signup and view all the answers

What do consolidated financial statements typically encompass?

The financial activities of subsidiaries and the parent company combined. Signup and view all the answers

How can income be defined in financial reporting?

As the total of revenues less total expenses. Signup and view all the answers

Study Notes

Course: 4H1CIC - Understanding accounting information and data

Course year: 2024-2025
Course responsible: Dr. Anouar Kahlooul, Associate Professor - Emlyon
Course contact: [email protected]

Course Modalities

Total hours: 12 hours
Number of parts: 4
Assessment: 100% final exam (multiple choice questions, open-ended questions, and exercises)
In-class activities: Lectures and exercises
Out-of-class activities: Readings, replicating in-class exercises, and practicing with suggested exercises

Objectives

Goal: To develop the ability to understand and use accounting information for making economic decisions
Purpose: To enable effective communication with company stakeholders (investors, shareholders, suppliers, customers, banks, and tax authorities)

Bibliography

Textbook: STOLOWY Hervé, DING Yuan (2017 or later editions). Financial Accounting and Reporting: A Global Perspective. (Only Part 1 of the book)
Online resource: https://library.em-lyon.com/Default/doc/SYRACUSE/543377/financial-accounting-and-reporting-a-global-perspect ive-herve-stolowy-yuan-ding-luc-paugam

Pedagogical Team

Course responsible: Anouar Kahlooul
Teachers: Edwige Nortier, Xavier Neyrand, Ines Gaddour, Yan Bertrand
Department Instructor: Thomas Delpech

Summary

Part 1: Introduction to Financial Accounting
Part 2: Preparing a Balance Sheet
Part 3: Preparing an Income Statement
Part 4: Closing entries

Financial Accounting - Definition

Definition: Accounting is an organizational system enabling the entry, classification, recording of basic data, and the presentation of financial statements reflecting a faithful image of the entity's financial situation and performance at the closing date. (PCG - Article 121-1)

Basic functions of Accounting

Functions: Interpret and record, classify, and summarize and communicate.
Output: Financial statements to aid decision-makers

Users, Information provided, Business Decisions

Users: Investors, creditors, managers, owners, customers, employees, competitors, government authorities
Information: Profitability, financial position, cash flows, performance evaluation, stock investments, tax strategies, labor relations, resource allocation, borrowing, investing

Financial Act. vs Management Act.

Financial Accounting: External decision-makers, strict methods, obligatory
Management Accounting: Internal decision-makers, free choice of methods, not regulated

The accounting process

Process: Information system that documents financial transactions following accounting rules to generate summary financial statements under auditor review.

Information asymmetry

Diagram: Shows the flow of information between directors, shareholders, and auditors
Source: Atrill, Peter, et al. Financial Accounting for Decision Makers 9th Ed, Pearson Education, Limited, 2019

Accounting Standards

Standards: Accounting complies with standards called Generally Accepted Accounting Principles (GAAP)
Examples: GAAP (PCG), International GAAP (IFRS), and US GAAP

Divergent conceptions of accounting

French GAAP: Focus on being the "memory" of the company, conservatism + historical cost, monetary nominalism.
IFRS: Provide information to the financial markets, conservatism, fair value, actualization.

Accounting regulation in France

Individual statements: Comply with French GAAP (Plan Comptable Général)
Listed groups: Comply with IFRS
Non-listed groups: Choose between IFRS and French GAAP

Main accounting principles

Accrual based accounting
Separate economic entity
Conservatism
Historical cost
Separate accounting periods

Accrual based accounting

Concept: Recognizes transaction impact when revenues and expenses occur. All companies, using French and International GAAP, follow this.
Contrast to Cash Basis: Cash basis recognizes impact when cash is received/disbursed.
Example: Gap between a sale and its cash collection

The principles of separate economic entity and ongoing concern (continuity)

Separate entity: Company’s accounts distinct from owners and partners.
Ongoing concern: Assumes company will continue to operate.

The principle of prudence (conservatism)

Conservatism: Preparations with caution and verification, with asymmetry in handling uncertainty (e.g., anticipate loss, but not gain).
Examples: Fluctuations in share values

Measurement

Historical cost: Asset recorded at acquisition or production cost.
Subsequent modification of value: Reductions in value (impairments) during accounting period (depreciation, amortization, provisions).
Current cost: Accounting value ≠ fair value

The principle of separate accounting periods

Periodicity: Firm's life divided into successive accounting periods.
Matching: Assigning revenues and expenses for the period they occurred.
Adjusting Entries: Necessary for period matching

Example

Example: Look for L'Oréal's financial statements (31 December 2023).
Publication: Mandatory for listed companies.
Annual Report: Communication tool to convey information to stakeholders. Includes parent and consolidated financial statements

Financial statements

International standard - IFRS: Statement of Financial Position, Income Statement, Statement of Changes in Equity, Statement of Cash Flows
French standards - PCG: Balance Sheet, Income Statement

Balance sheet

Definition: Statement of financial position showing the company's financial position at a specific date
Assets: Resources of the company.
Liabilities: Sources of financing the company.

Income statement

Definition: Activity statement summarizing revenues and expenses for a specific time period.
Revenues: Increase equity.
Expenses: Decrease equity.

Notes

Purpose: Provide additional explanations for financial statement figures, highlighting any irregularities or inconsistencies in accounting methodologies.

Statement of Cash Flows

Purpose: Explains sources and uses of cash during an accounting period. Helps better understand the change in cash balance.

Statement of Changes in Equity

Calculation: Opening equity + share capital changes + profit/loss - dividends = ending equity

Goal of the financial statements

Overall goal: Give information on the financial situation, profitability, and cash situation.
Balance Sheet: Financial position
Income Statement: Profitability.
Statement of Cash Flows: Cash situation.

Studying That Suits You

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Description

Test your knowledge on accounting standards such as French GAAP and IFRS. This quiz covers key characteristics, purposes, and differences between financial and management accounting. Ideal for students or professionals looking to strengthen their understanding of accounting frameworks.