Accounting Chap 1 Flashcards
Provides financial information about the current operations and financial condition of a business to individuals, agencies, and organizations.
Purpose of Accounting
Users of Accounting Information
- Owners
- Managers
- Creditors
- Government agencies
a system of gathering financial information about a business
and reporting this information to users.
Accounting
6 major steps of the accounting process
- Analyzing
- Recording
- Classifying
- Summarizing
- Reporting
- Interpreting
a) Looking at events that have taken place.
b) Thinking about how these events have affected the business.
Analyzing
a) Entering financial information about events into an accounting system.
b) Financial information can be entered manually; however, most businesses use computers.
Recording
a) Sorting and grouping similar items together.
b) Business accounts are classified.
Classifying
a) Bringing various items of information together.
b) Determines a result.
Summarizing
a) Communicating results.
b) Results are communicated in the form of financial statements.
Reporting
a) Deciding the meaning and importance of reported information.
b) Uses ratio and percentage analyses to explain how pieces of information relate to one another.
Interpreting
A. Developed by the Financial Accounting Standards Board (FASB), a private standard-setting body.
B. Provides concepts and guidelines to be followed during the accounting process.
Generally Accepted Accounting Principles (GAAP)
5 steps for FASB use to develop GAAP:
- The issue is placed on FASB’s agenda.
- A discussion memorandum is issued.
- Public hearings are held around the country.
- An exposure draft is issued.
- A final statement of financial accounting standards (SFAS) is
issued.
3 Types of Ownership Structures
SOLE PROPRIETORSHIP
PARTNERSHIP
CORPORATION
- The business is owned by one person.
- The owner assumes all the risks for the business personally.
- The owner makes all of the business decisions.
Sole Proprietorship
- The business is owned by more than one person.
- Partners assume all the risks for the business personally.
- Owners share risks and decision making.
- Partners may disagree about the way the business should be run.
Partnership
- The business is owned by stockholders.
- Corporations usually employ professional managers.
- Owners’ risks are limited to their initial investment.
- In publicly owned corporations, shareholders often have very little influence on business decisions.
Corporation
Types of Businesses
SERVICE BUSINESS
MERCHANDISING BUSINESS
MANUFACTURING BUSINESS
A BUSINESS THAT PROVIDES A SERVICE. ie Funeral Home, Computer Consultant, Physician
SERVICE BUSINESS
A BUSINESS THAT BUYS A PRODUCT FROM ANOTHER BUSINESS TO SELL TO CUSTOMERS. ie: Department store, Funeral Home, Jewelry Store
MERCHANDISING BUSINESS
A BUSINESS THAT MAKES A PRODUCT TO SELL. ie: Automobile Manufacturer, Furniture Maker, Toy Factory
MANUFACTURING BUSINESS
How is a funeral home classified as a business??
Since a funeral home offers both service (funeral, cremation, etc.) AND merchandise (caskets, vaults, urns, clothing, etc.), it is considered a:
SERVICE-MERCHANDISING business
- Record, sort, and file accounting information.
- Specialize in various areas of accounting.
- Require at least one year of accounting education.
Accounting Clerks
- Supervise the work of accounting clerks, perform daily accounting work, and summarize accounting information.
- In small-to-medium-sized businesses, may also help interpret accounting information.
- Require one to two years of accounting education and some experience as an accounting clerk.
Bookkeepers
- Provide accounting, auditing, or tax services under the direct
supervision of an accountant. - Generally require a two-year degree or significant accounting and bookkeeping experience.
Para-accountants
