Financial Accounting. 1. Introduction. Agenda. Financial Accounting prof. univ. dr. TIRON TUDOR Adriana

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1 Financial Accounting prof. Adriana Tiron Tudor- course lect. Vasile Cardos- practice Accounting Crossword Puzzle Word Scramble Agenda 2. Organizational matters 4. Must to know test your knowledges Objectives To continue and comprehensively study the concepts learned in BAcc To develop skills in recognition, measurement and disclosure of acc.info. To consolidate the scientific foundations of accounting in order to enhance the professional judgment of students; To develop students ability to understand and reflect the true life of a business entity, being capable to translate business transactions on the language of accounting (according to the Romanian GAAP); To enlarge the perspective of students on understanding accounting creating links with other sets of accounting regulations (EUD, IFRS); Motivating students to advance their scientific and professional knowledge by involving them in accounting research activities, case studies, fieldwork 1

2 Methods used in teaching the course Courses are constructed on an interactive approach basis, therefore students can freely put questions, require more explanation or discuss certain aspects with their professor. The most important methods are: Theoretical presentation, using video and audio resources Explanation of the conceptual approach Discussion of alternative explanations Practical examples on the theoretical concepts Answers on students questions Encouraging active participation of students in the course. Methods used in teaching the seminar Seminars are by definition interactive; case study approach is used. Theoretical constructs are broken down into elements through (further) explanations, practical examples Within a certain topic case studies are used to implement the theoretical knowledge of students. Case studies contain operations that must be analyzed and recorded in accounting. Both analysis and recording is fully discussed during the seminar. Together with operations some of the most important accounting documents are presented. Furthermore, the effects on financial statements are discussed. Involving students in individual activities (homework, extra case studies, presentations). Accounting language of business THE MANAGERS AND THE NEED FOR INFORMATION THE CLIENTS THE GOVERNMENT AND ITS INSTITUTIONS THE PUBLIC AND THE APPEAL TO THE ACCOUNTING INFORMATION Financial Accounting Information THE EMPLOYEES THE FINANCIAL CREDITORS THE INVESTORS THE SUPPLIERS AND OTHER COMMERCIAL CREDITORS THE JUDICIAL INSTANCES AND THE NEED OF EVIDENCE IN JUSTICE 2

3 Contents information: Since financial accounting is fully based on rules, the topics in this course are discussed according to the in due Romanian GAAPs, completed with references to international and European accounting rules. The main topics are: - capital accounting (owner s equity and long term liabilities) - fixed assets accounting (intangibles, tangibles, financial assets) - inventory accounting - accounting for settlements with third parties (receivables and liabilities) - treasury accounting (assets and liabilities) -accounting for income and expenses (operating, financial and extraordinary) - structure, content and issue of financial statements. Skills and competences obtained by graduating this course: Capability to use professional judgment in the recognition, measurement and disclosure of accounting information in financial statements; Ability to record in accounts economic events and perceive their effects on the elements of financial statements; Ability to distinguish between certain sets of accounting standards (rules), i.e. IFRS GAAP, Directives of the European Union, Romanian GAAP; Skills in drawing up, analyzing and interpreting financial statements of Romanian entities 2. Organizational matters Evaluation of students activity will be carried out as follows: Partial exam during the semester 30% of final grade; Individual activity during the semester ( course and seminar) 30% of final grade; Final exam in the exams session 40% of final grade; 3

4 2. Organizational matters Course: Financial Accounting Name and scientific degree: Adriana Tiron-Tudor, Professor, PhD Contact: tel int Consultation appointments: according to the schedule displayed at room 222 Seminar: Financial Accounting Name and scientific degree: Vasile Cardos, lect., PhD Contact: tel int.5892 Consultation appointments: according to the schedule displayed at room Organizational matters the course and seminar will be available via internet compulsory literature available at library : Stolowy, H. and Lebas, M.H. Financial Accounting and Reporting. A global perspective, 2nd Edition, Thomson Learning, 2006 recommended reading: the course and seminar for CIG romanian line of study Book : Contabilitate financiara, by Matis and all 2. Organizational matters Please keep in mind the following organizational details: Attendance both on course and seminar is mandatory for all students. Papers presented by students during semester activities must be original; students who are found to be copying (plagiary) will be rejected form the scheduled written exam. Any fraud or attempt to fraud during tests of exams will automatically lead to expulsion. Final results obtained in the exams session will be communicated within 48 hrs after the end of the exam. Final results obtained in the exams session will be electronically available for students on the webpage of faculty. Appeals must be done when results are communicated and they will be solved within 24 hrs after the communication of final results obtained. 4

5 The Romanian accounting system is based on Law no. 82/1991, republished in the Official Gazette of Romania no. 48 of 14 January 2005 (the Accounting Law ). The provisions of the Accounting Law are applicable to: private companies; national companies, Regies Autonomes, national institutes for research and development; cooperatives ; public institutions; non-profit organizations; other legal entities; private individuals authorized to carry out independent activities The Ministry of Public Finance is the competent authority to issue norms and regulations in the field of accounting, including: the chart of accounts, financial statement samples and records to be produced and maintained. Accounting norms and regulations for credit institutions, insurance and reinsurance companies, as well as companies admitted to trading on a regulated market are issued by the National Bank of Romania, the Insurance Supervisory Commission and the National Securities Commission, respectively, with the approval of the Ministry of Finance. 2001, MPF commenced a long and important process to implement IAS in Ro OMFP 94 for approval of the accounting regulations harmonized with the IV-th EEC Directive and the IAS. has been gradually applied to a larger category of companies so that by 2005 all companies will report under the new accounting regulations OMFP 306, applicable exclusively to smaller companies, starting with 1 January 2003 and introduced a simplified version of the financial statements and the European directives. 5

6 2004 new amendments to the Accounting Law specified that starting 1 Jan 2006, companies applying the provisions of Order no. 94 will fully apply IFRS and present consolidated financial statements, if a group. 2006, OMFP 1752 on approval of accounting regulations in accordance with the European directives,consequently, companies falling under art.1 paragraph 1 of the Accounting Law are to apply accounting regulations harmonized with the EU directives, whereas simplified accounting regulations are no longer to be applicable. 2009, OMFP 3055 on approval of accounting regulations in accordance with the European directives OMFP 1802 on the approval of the accounting regulations regarding the individual and consolidated annual financial statements Art. 2. Accounting, as the main instrument of information, management and control of the equity and the obtained results, shall provide: a) the chronological and systematic recording, the processing, the issuing and the keeping of the data related to the equity situation and the obtained results for both the requirements of the persons referred to in Art.1. and the relationship of the same with the partners or the shareholders, the clients, the suppliers, the banks, the fiscal bodies and other legal and natural persons; b) the control of the effected asset operations and of the employed processing procedures as well as the accuracy of the supplied bookkeeping data; c) the supply of information in order to assess the national treasure, to execute the national public budget as well as to work out the financial balances and the whole national economy balance. Art. 3. The accounting shall be worked out in the Romanian language and the national currency. The accounting of the foreign currency operations shall consider both the national currency and the foreign currency. Art. 5. (1) The persons under Art.1 are obliged to carry out the doubleentry accounting. Art. 6. (1) The accounting recording is chronological and systematic according to the account plans and the regulations issued as per the provisions of Art.1. (2) Any equity operation is written down when being carried out, in a document that is the basis of the accounting recording thus having the quality of a justifying document. (3) The justifying documents on which the accounting recordings are based imply the responsibility of the persons who prepared, checked and approved them or recorded them in the book as required. 6

7 Art. 7. (1) The accounting recording of the real and personal assets is carried out according to the purchasing, production or market value, as required. (2) The debts are recorded in the books according to their nominal value. Art. 8. The persons under Art.1 are obliged to carry out the general inventory of the assets: at the beginning of the activity; at least once a year during its operation; in case of merger or activity suspension, as well as in other cases provided by the law. Art. 9. The valuation of the equity elements based on the inventory and their recording in the bookkeeping balance are done according to the regulations issued by the Ministry of Economy and Finance. Art. 10. The official management document of the persons under Art.1 is the balance sheet which shall provide a true, clear and complete image of the assets, of the financial situations and the obtained results. Equity Bookkeeping Organization Art. 11. (1) The persons under Art.1 usually organize and carry out the accounting in a separate department managed by the finance and accounting director, the chief accountant or other persons entitled to carry out this function. These persons shall be university graduates in economics. (2) The accounting of the persons under Art.1 may be organized and carried out by authorized legal persons or natural persons who have the status of chartered accountant or expert accountant. They are responsible according to the law. (3)The responsibility to organize and carry out the accounting under the present law is incumbent on the manager, the credit ordering person or other person obliged to administer the equity. (4) The natural persons under paragraph 1 are responsible, together with the subordinated staff for the accounting according to the law. (5) If the accounting is not carried out by authorized persons the employer is responsible. Art. 12. (1) The object of equity accounting is the pecuniary expression of the real and personal assets including the land, the natural resources, the deposits and other goods with an economic potential, the liquid assets, the securities, the rights and obligations of the persons under Art.1, as well as the expenses, the incomes and their results. (2) The holding of tangible and liquid assets under any forms and any title, of any equity rights and obligations as well as any equity rights and obligations as well as any equity operation unrecorded in the books are forbidden. Art. 13. (1) Fixed means accounting is kept per categories and per each record object. (2) Tangible assets accounting is kept per quantity and value or only per value. 7

8 Art. 14. The value of the issued shares or other titles, as well as the payments into the subscribed capital account are clearly reflected in the accounting. Art. 15. The accounting of the clients and suppliers, of the other debts and obligations is kept per categories, as well as per each natural or legal person. Art. 16. The accounting of the expenses is kept per kinds of expenses according to their nature.. Art. 18. The accounting of the incomes shall be kept per kinds of incomes according to their nature. Art. 19. (1) The profit and loss is monthly established in the accounting. (2) The profit distribution is recorded in the books according to the destination as provided by the law. Account Books Art. 20. (1) The main books used in accounting are: the registerjournal, the inventory book and the ledger. Art. 21. The account books are used in strict accordance with their purpose and are properly arranged and completed in order to allow at any time the identification and the control of the performed equity operations. Art. 22. The trial balance is prepared every month in order to check the correct recording of the equity operations in the books. Financial statements Art. 27. (1) The financial statements shall be prepared every year as well as in case of merger or suspension, according to the law, of the activity of the persons under Art.1, as required. (3) The financial statements consists of: the profit and the loss balance/account, the execution account in case of public institutions, the annexes and the management report. (4) The financial year begins on the 1st Jan. and ends on the 31st Dec, except the first year of activity in which case it begins on the setting up or registration date, according to the law, of the persons under Art.1. Art. 28. The financial statements shall be based on the following rules: a) the positions in the balance shall comply with the data recorded in the books, correlated with the actual situation of the equity elements settled through the inventory; b) the compensations between the accounts written down in the balance as well as between the incomes and expenses from the profit account and the losses are not allowed. 8

9 The accounting reform in Romania started in 1991, along with publication of the Accounting Law no. 82/1991, which refers to perfecting the Romanian accounting system based on some principles and rules stipulated in the Directives of the European Union and the International Accounting Standards (IAS), so that the financial statements elaborated by the enterprises match the requests of the most categories of users. 4. Must to know. Patrimony s elements Rules of accounts (A,P,C,R) Steps of accounting analise Test Your Understanding Which of the following are examples of fixed assets? Cars on display at a showroom Machine installed at a factory Employees with more than one year of service remaining before their retirement 9

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