CM 1 (Principles of accounting)

What is the general definition of accounting?

It is the measurement (quantification) of an entity's economic activities and the communication of this financial information to decision-makers. It is known as the "language of business"

What are the two main branches of accounting?

Managerial accounting (compatibilité de gestion) for internal users like managers, and Financial accounting (comptabilité financière) for external users like investors, banks and regulators.

What does the accounting entity assumption (entité comptable) mean?

A business is financially separate from it owners. The owner’s personal money and the company’s money must never be mixed.

What is the monetary unit assumption?

All business transactions and economic events must be measurable and recorded in a specific currency amount ( such as USD, EUR, or KRW)

What does the Going Concern assumption (continuité d’exploitation)

We assume the company will continue operating in the foreseeable future and has no intention or need to liquidate (fermer boutique)

What is the periodicity assumption (périodicité)?

The long economic life of a business is divided into artificial time intervals, such as a month, a quarter or a fiscal year

What is the periodicity assumption ?

The long economic life of a business is divided into artificial time intervals, such as a month , a quarter, or a fiscal year

What is the fundamental accounting equation ?

Assets = Liabilities + Equity (Both sides must always remain strictly equal)

What is a Balance sheet (bilan comptable) and what does it show?

A financial snapshot (photo instantanée) at a specific point in time. It shows what resources the company owns (assets) and who has claims on them (liquidity and equity)

What are assets ?

Economic resources owned or controlled by the business that are expected to generate future economic value

What is the difference between Current Assets and Non-Current Assets ?

Current assets (actifs circulants) are expected to be converted into cash or consumed within one year.

Non-current assets (actifs immobilisés) are held and used for more than one year.

What are accounts receivable (créances clients)?

Money owed to the company by its customers for products or services that were delivered on credit. It is a current asset.

What is inventory (stocks)?

Goods available for sale to customers, or raw materials used to produce those goods. It is categorised as a current asset.

What does PP&E stand for, and what is it?

Property, Plant, and Equipment (immobilisations corporelles). Long term physical assets used in operations, such as land, factories, office buildings, and machinery.

What are intangible assets (immobilisations incorporelles)?

Long term assets that have no physical substance, such as patents, copyrights, brand trademarks, software, and goodwill (survaleur)

What are liabilities (passifs/dettes)?

Debts and legal obligations owed by the company to outside third parties (non owners)

What are accounts payable (dettes fournisseurs )?

Short term money owed by the company to its suppliers for goods or services bought on credit

Whar are accrued expenses (charges à payer)?

Expenses that have already been incurred (engagées) by the company but have no yet been paid in cash, such as wages payable (salaires dus) or interest payable (intérêt courus)

What are bonds payable ( emprunts obligataires ) ?

Long terms loans divided into certificates that large companies sell to institutional investors (investisseurs institutionnels ) on the financial markets to borrow large amounts of money.

What is Equity (capitaux propres ) ?

The residual claim (la valeur résiduelle) of the owners on the assets after deducting all liabilities : Equity = Assets - Liabilities

What is contributed capital or common stock (capital social) ?

The total amount of money or value that shareholders have directly paid into the company in exchange for ownership shares.

What is an IPO (introduction en bourse) ?

Initial Public Offering. The very first time a private company sells its shares to the general public on the open stock market.

What are Retained Earnings (bénefices non distribués / réserves) ?

The accumulated net income (richesse accumulée) earned by the firm since its inception, minus all dividends paid out to shareholders.

What is an Income statement (compte de résultat) ?

A financial Statement reporting revenues earned and expenses incurred over a specific period of time to calculate net income : Revenues - Expenses = Net income

Why is the income statement called a temporary statement (état financier temporaire) ?

Because it measures performance only over one specific accounting period (e.g. one quarter year). At year-end, its accounts are reset to zero.

What are closing entries (écritures de clôture)?

Journal entries made at the end of the fiscal year to clear the income statement accounts to zero and transfer the final net income into Retained Earning on the balance sheet.

What is the statement of cash flows (tableau de flux de trésorerie) ?

A financial report showing the exact physical cash coming in and going out of the business during a period, broken down by operating, investing, and financing activities.

What is the statement of changes in owner’s equity (tableau de variation des capitaux propres) ?

A statement explaining how owner financing changes from one balance sheet to the next, specifically tracking net income, dividends paid, and new capital contributions.

What is chart of accounts (plan comptable) ?

A structured list of all account titles and account numbers used by a company to systematically record and classify financial transactions.

What is the key difference between accounts receivable and accounts payable ?

Accounts receivable is an asset (customers owe you money), while accounts payable is a liability (you owe your suppliers money).