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60 Cards in this Set

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an information system that measures. processes. and communicates financial information about an identifiable economic entity
How is accounting a link between business activities and decision makers?
-MEASURES business activites by recording data
-STORES and PROCESSES data for future use
-COMMUNICATES info to decision makers through reports
Financing activities
-obtain funds and capital to begin and continue operating a business
economic unit that aims to sell goods and services to customers at prices that will provide an adequate return to its owners
Examples of financing activities
Getting money from creditors (banks), owners, and repaying them.
Operating activities
-Selling of goods and services to customers
-buying and producing goods and services
-employing workers
-paying government taxes
Three activites businesses engage in to meet goals
Financing activities, Investing activities, Operating activities
Performance measures
indicates whether managers are achieving their business goals and whether the business activities are well managed
Examples of Performance measures
-earned income measures profitability
-cash flow measures liquidity
-ratios or accounting measures
Management Accounting
-provides internal decision makers ( who must achieve liquidity and profitability) with information about financing , investing, and operating activities.
Financial Accounting
generates reports and communicates them to external decision makers so that they can evaluate how well the business has achieved its goals
Financial Statements
reports to external users / decision makers
-provide info on profitability and liquidity
process of recording financial transactions and keeping financial records
Management Information System
-interconnected subsystems that provide the information needed to run a business
Most important subsystem of Management information system
accounting information system- manages flow of economic data
3 categories of people who use accounting information to make decisions
1- Those who manage business
2-Those with direct financial interest
3-Those with indirect financial interest
people who have overall responsibility for operating a business and for meeting its profitability and liquidity goals
6 basic management functions
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
What is Financial managent in charge of?
financing the business
What is Operations and production management in charge of?
Producing goods and services
What is Asset management in charge of?
Investing the resources of the business
What is Marketing management in charge of?
Marketing goods and services
What is Human Resources management in charge of?
Managing employees
What is Information systems management in charge of?
Providing Information to decision makers
invest or may invest in a business and acquire a part ownership
people that business borrow money from or purchase goods from without paying
People with direct financial interest in a business
investors, creditors
People with indirect financial interest in a business
Tax authorities,
Regulatory agencies
Those who advise creditors and investors
Securities and Exchange Commission (SEC)
-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
analysis of transactions in terms of recognition, valuation, and classification.
-Answers: How is this transaction best represented in the accounting records?
4 question accountant must answer to make an accounting measure
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?
Exchange Transaction
an exchange of value
-purchase, sale, collection, loan
Business Transactions
Economic events that affect the financial position of a business entity
-Only recorded if it relates directly to business
Nonexchange Transaction
-economic event that has the same effect as an exchange transaction but does not involve an exchange
-losses from fire, flood, theft, etc.
Money Measure
all business transactions are recorded in terms of money( only common factor in all transactions)
exchange rate
value of one currency in terms of another
seperate entity
-it is distinct from its creditors, customers, and owners
-has its own financial records
What are the 3 forms of business organization?
sole proprietorships
corporations (legally seperate from owners)
Sole Proprietorship
-owned by one person, not incorporated
-owner's personal resources at stake
-Business duration determined by owner
-Ownership transfered by sale
-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
-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
Financial Position
refers to the economic resources that belong to a company and the claims(equities) against those resources at a point in time
-economic resources
-owned by a business, expected to benefit future operation
-monetary, physical and nonphysical
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
economic resources
Accounting equations
Assets= Liabilities + Owner's Equity

Econ. Resources= Equities
Econ. resc= Creditor's Equity + Owner's Equity
-Must always be in balance
Owner's equity
claims by the owner of a business to the assets of a business
-equals residual interest/equity after liabilities are deducted
-equals net assets
Four Types of transactions affect owner's equity
Owner's Withdrawals, Owners's Investment
Owner's withdrawal and Investments
owner puts money into business or takes money out
Revenue and expenses
increases and decreases in owner's equity that result from operating the business
net loss / net income
expenses exceed revenues, revenues exceed expenses
does the purchase of an asset affect owner's equity?
what are the labels, cash, accounts payable, capital, etc. called?
used to accumulate amounts that result from similar transactions
how are transactions that affect owner's equity grouped
identified by type so they can later be grouped on reports
how are assets purchased on credit recorded?
-record full amount at the time of purchase
does payment of a liability affect owner's equity or the asset purchased on credit
do revenues/expenses have to be recorded when payment is received?
no, they are recorded when they are earned, not always when payment is given
does paying wages, salaries, and utility bills affect owner's equity?
yes, they are expenses