Accounting 101 - Chap 1: Uses Of Accounting Info And The Financial Statement

Front 1

Accounting

Back 1

an information system that measures. processes. and communicates financial information about an identifiable economic entity

Front 2

How is accounting a link between business activities and decision makers?

Back 2

-MEASURES business activites by recording data
-STORES and PROCESSES data for future use
-COMMUNICATES info to decision makers through reports

Front 3

Financing activities

Back 3

-obtain funds and capital to begin and continue operating a business

Front 4

Business

Back 4

economic unit that aims to sell goods and services to customers at prices that will provide an adequate return to its owners

Front 5

Examples of financing activities

Back 5

Getting money from creditors (banks), owners, and repaying them.

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Operating activities

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-Selling of goods and services to customers
-buying and producing goods and services
-employing workers
-paying government taxes

Front 7

Three activites businesses engage in to meet goals

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Financing activities, Investing activities, Operating activities

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Performance measures

Back 8

indicates whether managers are achieving their business goals and whether the business activities are well managed

Front 9

Examples of Performance measures

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-earned income measures profitability
-cash flow measures liquidity
-ratios or accounting measures

Front 10

Management Accounting

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-provides internal decision makers ( who must achieve liquidity and profitability) with information about financing , investing, and operating activities.

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Financial Accounting

Back 11

generates reports and communicates them to external decision makers so that they can evaluate how well the business has achieved its goals

Front 12

Financial Statements

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reports to external users / decision makers
-provide info on profitability and liquidity

Front 13

Bookkeeping

Back 13

process of recording financial transactions and keeping financial records

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Management Information System

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-interconnected subsystems that provide the information needed to run a business

Front 15

Most important subsystem of Management information system

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accounting information system- manages flow of economic data

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3 categories of people who use accounting information to make decisions

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1- Those who manage business
2-Those with direct financial interest
3-Those with indirect financial interest

Front 17

Management

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people who have overall responsibility for operating a business and for meeting its profitability and liquidity goals

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6 basic management functions

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1- Financing the business
2-Investing the resources of the business
3-Producing goods and services
4-Marketing goods and services
5-Managing employees
6-Providing information to decision makers

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What is Financial managent in charge of?

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financing the business

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What is Operations and production management in charge of?

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Producing goods and services

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What is Asset management in charge of?

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Investing the resources of the business

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What is Marketing management in charge of?

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Marketing goods and services

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What is Human Resources management in charge of?

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Managing employees

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What is Information systems management in charge of?

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Providing Information to decision makers

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Investors

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invest or may invest in a business and acquire a part ownership

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Creditors

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people that business borrow money from or purchase goods from without paying

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People with direct financial interest in a business

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investors, creditors

Front 28

People with indirect financial interest in a business

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Tax authorities,
Regulatory agencies
Unions
Those who advise creditors and investors

Front 29

Securities and Exchange Commission (SEC)

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-set up by congress to protect the public, regulate the issuing, buying and selling of stocks in the U.S.
- All public corporations must report to them periodically

Front 30

Measurement

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analysis of transactions in terms of recognition, valuation, and classification.
-Answers: How is this transaction best represented in the accounting records?

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4 question accountant must answer to make an accounting measure

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1-What is measured?
2- When should the measurement be made?
3-What value should be placed on what is measured?
4- How should what is measured be classified?

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Exchange Transaction

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an exchange of value
-purchase, sale, collection, loan

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Business Transactions

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Economic events that affect the financial position of a business entity
-Only recorded if it relates directly to business

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Nonexchange Transaction

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-economic event that has the same effect as an exchange transaction but does not involve an exchange
-losses from fire, flood, theft, etc.

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Money Measure

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all business transactions are recorded in terms of money( only common factor in all transactions)

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exchange rate

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value of one currency in terms of another

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seperate entity

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-it is distinct from its creditors, customers, and owners
-has its own financial records

Front 39

What are the 3 forms of business organization?

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sole proprietorships
partnerships
corporations (legally seperate from owners)

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Sole Proprietorship

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-owned by one person, not incorporated
-owner's personal resources at stake
-Business duration determined by owner
-Ownership transfered by sale

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Partnership

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-unincorporated association that brings together the talents and resources of two or more people
-At least one partner has unlimited liability
-New partnership must be formed if a member leaves, or passes on ownership
-changes in percentage of interest requires new partnership
-

Front 42

Corporation

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-Business chartered by the state and legally seperate from its owners
-risk is limited to investment
-unlimited lifetime
-transfer ownership through stock
-stock holders elect board of directors to run corporation

Front 43

Financial Position

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refers to the economic resources that belong to a company and the claims(equities) against those resources at a point in time

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Assets

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-economic resources
-owned by a business, expected to benefit future operation
-monetary, physical and nonphysical

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liabilities

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creditor's equity
-present obligation of a business to pay cash, transfer assets, or provide services to other entities in the future
-debts. employee salaries, taxes

Front 46

equities

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economic resources

Front 47

Accounting equations

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Assets= Liabilities + Owner's Equity

Econ. Resources= Equities
Econ. resc= Creditor's Equity + Owner's Equity
-Must always be in balance

Front 48

Owner's equity

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claims by the owner of a business to the assets of a business
-equals residual interest/equity after liabilities are deducted
-equals net assets

Front 49

Four Types of transactions affect owner's equity

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Owner's Withdrawals, Owners's Investment
Revenue
Expenses

Hint 49

WIRE

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Owner's withdrawal and Investments

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owner puts money into business or takes money out

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Revenue and expenses

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increases and decreases in owner's equity that result from operating the business

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net loss / net income

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expenses exceed revenues, revenues exceed expenses

Front 53

does the purchase of an asset affect owner's equity?

Back 53

No

Front 54

what are the labels, cash, accounts payable, capital, etc. called?

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accounts

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accounts

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used to accumulate amounts that result from similar transactions

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how are transactions that affect owner's equity grouped

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identified by type so they can later be grouped on reports

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how are assets purchased on credit recorded?

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-record full amount at the time of purchase

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does payment of a liability affect owner's equity or the asset purchased on credit

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no

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do revenues/expenses have to be recorded when payment is received?

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no, they are recorded when they are earned, not always when payment is given

Front 60

does paying wages, salaries, and utility bills affect owner's equity?

Back 60

yes, they are expenses