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31 Cards in this Set
- Front
- Back
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What is Accounting??
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Information Collection & Processing Function. Accountants measure the companies' financial activities and communicate the information to People
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What is Financial Accounting?
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Investors and their corporations measuring and communicating corporations to investors. The process of collecting information about a company and communicating it.
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What Activities to accountants measure?
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Financing Activities ( external sources of funding)
a. Owners - Stockholders' Equity (SE) b.Lenders - Liabilities Investing Activities 1. long-term resources(building) - Assets 2. Other resources - Assets Operating activities - primary operations of the company: 1. Providing products and services to customers - Revenue 2. Associated costs of producing revenue - Expenses |
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ACCOUNTING EQUATION
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Resources = Claims to Resources
(*Assets= Liabilities+ SE)* Own= Owe+ Residual for owners Own - Owe = Residual for owners (basic model of business evaluation) |
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Components of Stockholders' Equity
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SE
1. Revenue - Expenses = NET INCOME ( profit) 2. Dividends (Stockholders claim all profits bcuz they are the owners of the company) (Dividends are distributions to owners, decreasing their claims to company's resources.) |
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How do Accountants Communicate?
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Four Basic Financial Statements:
Income Statement Statement of SE Balance Sheet Statement of Cash Flows |
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INCOME STATEMENT
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Revenues- Expenses= NET INCOME
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NET INCOME
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profit or earning
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Revenues
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Sales of goods and services
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Expenses
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Cost of earning revenue
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Statement of Stockholders' Equity ( SE)
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Common Stock+ Retained Earnings
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COMMON STOCK
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Investments by Owners
Beginning Common Stock + Issuance of CS = Ending CS |
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RETAINED EARNINGS
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All net income less dividends over the life of the company.
Beginning Retained Earnings+Net Income- Dividends= Ending Retained Earnings |
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BALANCE Sheet
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Resources= Claims to Resources
Assets = Liabilities+ SE |
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Assets
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Resource owned by the company
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Liabilities
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Creditors' claims to those resources
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Stockholders' Equity
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Any resource not claimed by creditors'
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STATEMENT OF CASH FLOWS
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Operating Activities
Investing Activities Financing Activities |
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Operating Activities
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include
cash receipts and cash payments for transactions involving revenues and expenses |
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Investing Activities
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include cash transactions for the purchase and sale
of investments and productive long-term assets. Long-term assets are resources owned by a company that are thought to provide benefits for more than one year |
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Financing Activities
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include cash transactions with lenders, such as borrowing
money and repaying debt, and with stockholders, such as issuing stock and paying dividends. |
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TRUE OR FALSE?
Any transaction that affects the income statement ultimately affects the balance sheet through the balance of retained earnings. |
TRUE. All transactions that affect revenues or expenses reported in the income statement
ultimately affect the balance sheet through the balance in retained earnings |
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Why is the US economy the most prosperous in the world and why is the US the most influential country in history? Why does the US have such a high standard of living?
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FREE MARKET CAPITALISM
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Capitalism VS. Socialism
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Socialism - Public, eveyone owns a part and the government provides your needs.
Capitalism- Private, independent owner in charge of the business |
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MOST INFLUENTIAL INNOVATIONS of THE MILLENNIUM
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1.Benefits from competition - business and democracy, freedom of worship. Competition in the world of ideas.
2. Pursuit of profit - importance of rational economic behavior. italian. WITHOUT DOUBLE ENTRY BOOKKEEPING, the rational conduct of business, and the pursuit of profit, modern civilization would not exist. |
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OBJECTIVES OF FINANCIAL ACCOUNTING
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FIN ACCT should provide information that:
1. is useful to INVESTORS and CREDITORS in making decisions 2. helps to predict CASH FLOWS 3. tells about economic resources, claims to resources and changes in resources and claims |
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What is the role and purpose of financial accounting?
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Measure business transactions, communicate those measurements to people to make decisions
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What is the Accounting equation?
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Assets= Liabilities + SE
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What does the equation represent?
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Resources = claims to resources
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What does the Balance Sheet report?
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Assets= liabilities + SE
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What does the income statement report?
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Revenues - expenses = NET INCOME
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