Financial Accounting Libby 7E Ch. 1 Financial Statements & Business Decisions

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Accounting

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Is a system that collects and processes financial information about an organization and reports that information to the decision makers.

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Financial Accounting Reports

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External Decision Makers = Creditors(GOVT), Investors, Suppliers, and Customers

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Managerial Accounting Reports

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Internal Decision makers = Manager, Employees

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Four Basic Financial Statements

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Balance Sheet
Income Statement
Statement of Retained earnings
Statement of cash flows

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Balance Sheet

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Statement of financial position; reports the amount of assets, liabilities, and stockholders' equity of accouting entity at a point in time.

Assets = liabilities + Stockholder equity

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Income statement

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Statement of earnings, Statement of operations; Reports the accountant's primary measure of economic performance during the accouting period.

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Statement of Retained Earnings

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Reports the way that net income and the distribution of dividends affected the financial position of the company during the accouting period.

Beginning RE + Net Income - Dividends = Ending RE

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Statement of Cash flows

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Reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing.

+/- Cash Flows from operating activities
+/- Cash Flows from investing activities
+/- Cash Flows from financing activities

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Accouting Activity

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Is the organization for which financial data are to be collected.

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Accounting Period

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Is the time period covered by the financial statements.

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Notes

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Provide supplemental information about the financial condition of a company, without which the financial statements cannot be fully understood.

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GAAP

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Generally Accepted Accouting Principles are the measurement rules used to develop the information in financial statements.

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SEC

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Securities And Exchange Commission is the U.S. Govt. agency that determines the financial stamens that public companies must provide to stockholders and the measurement rules that they must use in producing those statements.

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FASB

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Financial Accounting Standards Board is the private sector body given the primary responsibility to work out the detailed rules that become generally accepted accouting principles.

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PCAOB

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Public Company Accouting Oversight Board is the private sector body given the primary responsibility to issue detailed auditing standards.

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Audit

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is an examination of the financial reports to ensure that they represent that they claim and conform with GAAP

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Price/Earnings Ratio

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Measures how many times currents years earnings investors are willing to pay more for a companies stock.