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83 Cards in this Set
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Accounting |
An information and measurement system that identifies recordes and communicates information about an organization's business activities. Accounting also includes the analysis and interpretation of information. Accounting is also called the language of business |
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External users |
External users of accounting information do not directly run the organization and have limited access to its accounting information. e.g. Lender's, shareholders, government's, consumer groups, external Auditors, suppliers, brokers, business press, and customers |
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Internal users |
Are users of accounting information directly manage and operate organization such as a chief executive officer or CEO and other executive or managerial level employees. Executives, managers, internal Auditors, sales staff, budget analysis, and controllers |
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Financial accounting |
The area of accounting aimed at serving external users by providing them with general purpose financial statements |
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Lenders |
Loan money or other resources. Example are banks savings and Loans, coops, and Mortgage and Finance companies |
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Shareholders |
Investors or owners of a corporation they decide whether to buy hold or sell stock |
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Directors |
Are elected to a board of directors that oversees an organization. Directors report to shareholders and they hire top executive management |
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Non-executive employee and labor unions |
Use financial statements to judge the fairness of wages, assess job prospects, and bargain for better wages. |
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Regulators |
Have the legal authority over certain activities of organizations. For example that IRS requires accounting reports in Computing taxes |
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Voters, legislators, and government officials |
Use accounting information to Monitor and evaluate government receips and expenses |
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Contributors to non-profit organization |
Use accounting information to evaluate the use and impact of their donations |
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Suppliers |
Use accounting information to judge the Financial Health of a customer before making sales on credit |
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Customers |
Use Financial reports to assess the staying power of potential suppliers |
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Managerial accounting |
The area of accounting that serves and the decision-making needs of internal users |
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Four broad areas of accounting opportunities |
Financial, managerial, Tex Asian, and accounting related |
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Ethics |
Beliefs that distinguish right from wrong |
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Three parts of the fraud triangle |
Opportunity, pressure or incentive, rationalization or attitude |
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SOX |
Sarbanes-Oxley Act: helps curb Financial abuse at companies that sell their stock to the public. Requires a business that sell stuff to disclose if it has adopted a code of ethics for its Executives and the contents of that code |
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Auditors |
Verify the effectiveness of internal controls |
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Audit |
Examines whether financial statements are prepared using gaap. |
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Dodd-Frank Wall Street reform and consumer protection act |
Hey. To promote accountability and transparency, B. Put it in to the notion of too-big-to-fail, and C. protect consumers from abusive Financial Services |
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GAAP: generally accepted accounting principles |
Aims to make information relevant reliable and comparable |
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SEC |
Securities and Exchange Commission is a government agency that has the legal Authority to set gaap. The sect overseas proper use of gaap by companies that raise money from the public through Insurance of stock and debt |
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FASB |
Financial Accounting Standards Board, which is a private sector group that sets both bored and specific principles Conceptual framework consist of: Objectives to provide information useful to investors creditors and others Qualitative characteristics to require relevant reliable and comparable information Elements to Define items that financial statements can contain Recognition and measurement to set criteria for an item to be recognized as an element and how to measure it |
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IASB |
Internal Accounting Standards Board, an independent group issues International financial reporting standards (IFRS) |
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General principles |
Are the assumptions Concepts and guidelines for preparing financial statements |
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Specific principles |
Are detailed rules used and reporting business transactions and events. Specific principles arise more often from the rulings of authoritative groups. |
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Accounting Principals |
General principles consist of at least four basic principles, or assumptions, and two constraints |
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The measurement principle (Cost Principal) |
Also called the cost principle, prescribes that accounting information is based on actual cost with possible later justments to Market. Cost is measured on a cash or equal to cash basis this emphasizes reliability and verifiability |
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Objectivity |
Information is supported by independent unbiased evidence it is more than an opinion |
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Revenue recognition principle |
Prescribes that revenue is recognized when goods or services are provided to customers, and at the amount expected to be received from the customer. Usually this is received in cash but is also common to receive a customer promise to pay at a future date called credit sales. To recognize this means to record it |
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Expense recognition principle also called the matching principle |
Prescribes at the company record the expenses incurred to generate the revenue reported. The principle of matching and revenue recognition or key to Modern accounting |
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Full disclosure principle |
Prescribes that a company report the details behind financial statements that would impact users decision. Those disclosures are often and footnotes to the statement |
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Growing concern assumption |
Means that accounting information reflects the presumption that the business will continue operating instead of being closed or sold |
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Monetary unit assumption |
Means that we can express transactions and events in monetary or money units. |
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Time. Assumption |
Presumes that the life of a company can be divided into time periods such as months and years and that you swirl reports can be prepared for those periods |
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Business entity assumption |
Means that a business is accounted for separately from other business entities including its owner. A business entity can take one of three legal forms proprietorship, partnership, or Corporation |
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materiality constraint |
Prescribes the only information that influences decisions such as through importance and dollar amount need be disclosed |
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Cost to benefit constraint |
Prescribes that only information with benefits of disclosure greater than the cost of providing it need be disclosed |
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Common stock or Capital stock |
When a corporation issues only one class of stock |
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Accounting equation |
Assets = liabilities + equity |
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Assets |
Cash, accounts receivable, office supplies, land, office equipment Resources a company owns or controls. The term receivable is used to refer to an asset that promises a future inflow of resources items or services that are referred to as on credit or on account hasn't accounts receivable from a customer |
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Liabilities |
Are creditors claims on assets. These claims reflect company obligations to provide assets, products, or services to others. The term payable refers to a liability that promises a future outflow of resources examples are wages payable to workers, accounts payable to suppliers, notes payable to Banks, and taxes payable to government |
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Equity |
Is the owners claim on assets and is equal to assets minus liabilities. Equity is also called net assets or residual equity |
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Owner Investments |
Call stock issuances, and from revenues. It decreases from dividends and from expenses. |
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Four elements of equity |
Common stock which is part of contributed Capital, reflects inflows of resources such as cash and other net assets from stockholders in exchange for stock Dividends the outflow of resources such as cash and other assets to stockholders is dividends which reduce Equity. Revenues increase equity from sales of products and services to customers. Examples are sales of products, Consulting Services provided, facilities rented to others, and commissions from services. Expenses decrease Equity from cost of providing products and services to customers. Examples are cost of employee time, use the supplies, advertising, utilities, and insurance fees |
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Expanded accounting equation |
Assets = liabilities + contributed capital + retained earnings (CC&RE are equity) Assets = liabilities + common stock - dividends + revenues - expenses ( D, R, E are retained earnings) |
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Net income |
Occurs when revenues exceed expenses. Net income increases equity Revenues - expenses = net income |
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Net loss |
Occurs when expenses exceed revenues which decreases equity |
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Annual report filing for most publicly traded us companies |
Form 10-K and the quarterly form 10-q |
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External transactions |
Exchanges of value between two and two T's which yield change in the accounting equation |
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Internal transaction |
Exchanges with an identity which may or may not affect the accounting equation |
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Events |
Happenings that affect the accounting equation and are reliably measured. These include events such as changes in the market value of certain assets and liabilities and natural events such as floods and fires that destroy assets and create losses |
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Equation in balance |
Assets always equal the sum of liabilities and equity |
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Services |
Providing customers services for profit |
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Merchandisers |
Buying products and reselling them for profit |
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Manufacturers |
Creating products and selling them for profit |
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Income statement |
Describes a company's revenues and expenses along with the resulting net income or loss over a period of time
Reports the revenues and expenses incurred by a business
Company name Income statement For the month ended
Revenues: Type of Revenue(the first transaction of a statement/column has dollar sign)
Total Revenue $______
Expenses: Rent expense Salary expense Telephone expense Miscellaneous expense
Total expenses ________
Net income $________ |
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Statement of retained earnings |
Statement of Retained earnings form will start with the beginning of the month balance Net income will be transferred from the income statement Less the dividends Lastly record the return retained earnings for the end of the month Explains changes in retained earnings from net income or loss and from any dividends over a period of time
Reports the changes in equity during a period of time |
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Balance sheet |
Describes a company's financial position types amounts of assets, liabilities, and equity
Reports the balances of assets, liabilities, and owner's equity at a point in time
Company Named Balance Sheet As of Month and Day
Accounts that appear on the balance-sheet: (1st column) Assets: Cash (1st account shows dollar sign at the top of each column) Accounts receivable Office supplies Land Office equipment
(Bottom 1st column) Total assets $_________
(2nd column) Liabilities: Accounts payable (1st account shows dollar sign at the top of each column)
(2nd column) Equity: Common stock Retained earnings (comes from the Statement of Retained Earnings) Total Equity________
(Bottom 2nd column) Total Liabilities and Equity $_____
Total Assets should = Total Liabilities and Equity |
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Statement of cash flows |
Identifies the cash inflows and outflows.
Three sections of the statement of cash flows include financing, operating, and investing.
Name of company Statement of cash flows For the months ended
Cash flows from operating activities: Cash received from customer Cash paid for expenses (miscellaneous, rent, telephone, wages, Etc) Net cash provided/used by operating activities...... $________ use ( ) for negative
Cash flows from investing activities: Cash paid for equipment Net cash provided/used by investing activities...... $______ use ( ) for negative
Cash flows from financing activities: Cash investments from shareholders Cash dividends to shareholders
Net cash provided/used by financing activity...... $_______ use ( ) for negative Net increase in cash Cash balance, October 1st Cash balance, October 31st |
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Sustainability |
Refers to environmental, social, and governance aspects of a company. A company social aspects include donations to hospitals, colleges, Community programs, and law enforcement. Environmental aspects include programs to reduce pollution, increase product safety, improve worker conditions, and support green activities. Governance aspects include social responsibility programs, community relations, and use of sustainable materials |
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Sustainability Accounting Standards Board (SASB) |
Nonprofit entity engaged in creating an disseminating sustainability accounting standards for used by companies. Sustainability accounting standards are intended to complement Financial Accounting Standards. The sasb has its own conceptual framework to guide and development of sustainability standards |
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Return on assets equation |
Return on assets equal net income divided by average total assets |
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Financings role in business activities |
Financing activities provide the means organizations use to pay for assets such as land buildings and equipment. The two sources of financing are owner and non-owner. Owner financing her first two sources contributed by the owner along with any income the owner leaves in the organization. Non-owner or creditor financing refers to resources contributed by creditors or lenders. |
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Investing role in business activities |
Investing activities are the acquiring and disposing of assets that an organization uses to buy and sell its products or Services. Some organizations require land and factories to operate. Others need only an office. Invested amounts are referred to as assets. Creditor and owner financing hold claims on acids. Creditors claims are called liabilities, and the owners claim is called Equity. This yield the accounting equation assets equal liabilities plus equity |
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Operating role in business activity |
Operating activities involve using resources to research, develop, purchase, produce, distribute, and market products and services. Sales and revenues are the inflow of assets from selling products and services. Costs and expenses are the outflow of acids to support operating activities |
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Explain the purpose and importance of |
Accounting is an information and measurement system the aims to identify, record, and communicate information about business activities. It helps assess opportunities, products, Investments, and social and Community responsibilities. |
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Identify users and uses of, and opportunities in, accounting |
Users of accounting are both internal and external. Some users and uses of accounting include Managers in controlling, monitoring, and planning lenders for measuring the risk and return of loans shareholders for assessing the return and risk of stock directors of overseeing management enter employees for judging employment opportunities. |
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Explain why athix are crucial to |
The goal of a county is to provide useful information for decision-making. For information to be useful and must be trusted. This demands ethical behavior in accounting. |
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Explain generally accepted accounting principles and Define and apply several Accounting |
Generally acceptable accounting principles are a common set of Standards applied by accountants. Accounting principles Aid in producing revelant, reliable, and comparable information. Four principles underlying financial statements were introduced, cost, Revenue recognition, expense recognition, and full disclosure. Financial statements also reflect for assumptions growing concern, monetary unit, time period, and business entity. |
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Identify and describe the three major activities of organizations |
Organizations carry out three major activities: financing investing and operating. Financing, from either creditors or owners, is the means used to pay for resources. Investing refers to the buying and selling of resources such as land, buildings, and machines. Operating activities are those used in acquiring and selling products and services. |
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Define interpret the accounting equation and each of its components |
The accounting equation is: Assets = liabilities + equity. Assets are resources owned by a company. Liabilities are creditors claims on assets. Equity is the owners claim on assets. The expanded accounting equation is: Assets= liabilities + [ common stock - dividends + revenues - expenses] |
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Compute and interpret return on assets |
Return on assets is computed as net income divided by average acids. For example, if we have an average balance of $100 in a savings account and it earns $5 interest for the year, the return on assets is 5 / 100 or 5% |
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Explain the relationship between return and risk |
Return refers to income, and risk is the uncertainty about the return we hope to make. All Investments involve risk the lower the risk of an investment, the lower is expected to return. Higher risk implies higher, but riskier, expected return. |
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Analyze business transaction using the accounting equation |
A transaction is an exchange of economic consideration between two parties. Examples include exchanges of products, Services, money, and the rights to collect money. Transactions always have at least two effects on one or more components of the accounting equation. This equation is always in balance. |
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Identify and prepare basic financial statements and explain how they interrelate |
Four financial statements report on an organization's activities Balance sheets, income statement, statement of retained earnings, and statement of cash flows. |
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private accounting |
This area of a county is where employees work for business and are highly regarded |
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Public accounting |
This area of accounting includes offering tax advice services and auditing services and are highly regarded |
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What is the order in which a company prepares financial statements |
1 income statements 2 statement of retained earnings 3 balance sheets 4 statement of cash flows |
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Operating activities |
Dated a cash receipts and cash disbursements. Generally related to the income statement. |
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Investing activities |
Cash receipts and cash disbursements generally related to long-term assets |
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Financing activities |
Cash receipts and cash disbursements generally related to long-term liabilities and equity |
