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FDNACCT > Accounting: The Language of Business > Flashcards

Accounting: The Language of Business Flashcards

1
Q

Why do we need accounting?

A

We need accounting so that business owners/managers/interest parties can evaluate the performance of the business.

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2
Q

Definition of Accounting

A

Process where finanical information is recorded, classified, summarized, interpreted and communicated to owners, managers and other interested parties.

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3
Q

What is the use of an accounting system?

A

It is used to accumulate and classify financial data then summarize them in into periodic reports called financial statements.

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4
Q

4 Kinds of Accounting Careers

A

Public
Managerial / Private
Governmental
Education

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4
Q

What do accountants do?

A
  1. Establish records and procedures
  2. Supervises the operations
  3. Interprets the resulting information

…of the accounting system

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5
Q

What is the difference between public , private, governmental, and education accounting?

A

Public accountants provide accounting services for other businesses. Private accountants work for a single busines exclusively. Governmental accountants work for state/government units. In education, the accountant is a member of the academe.

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6
Q

3 Services of Public Accountants

A
  1. Auditing
  2. Tax Accounting
  3. Management Advisory Services
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7
Q

Definition of Auditing

A

Review of financial statements to assess fairness and adherence to generally accepted accounting principles (GAAP)

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8
Q

2 Branches of Tax Accounting

A

Tax Compliance
Tax Planning

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9
Q

Definition of Tax Compliance

A

Preparation of tax returns and the audit of those returns

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10
Q

Definition of Tax Planning

A

Advice clients how to structure financial affairs in order to reduce tax liability

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11
Q

Definition of Management Advisory Services

A

Helping clients improve information systems or business performance

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12
Q

Requirements to be a CPA

A
  • Certain number of college credits in accounting courses
  • Demonstrate good personal character
  • Pass Uniform CPA Examination
  • Fulfill experience requirements of the state of practice
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13
Q

Users of Financial Information (10)

A
  1. Owners and Managers
  2. Lenders and creditors
  3. Investors
  4. Employees
  5. Tax Authorities
  6. Customers
  7. Regulatory Agencies
  8. Employee Unions
  9. Trade Associations
  10. Financial Intermediaries
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14
Q

These users are classified as internal users

A

Owners and Managers
Employees

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15
Q

Entity

A

Recognized as having its own separate identity

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16
Q

Economic Entity

A

A business/organization whose major purpose is to profit for its owners’

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17
Q

Social Entities

A

NGOs

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18
Q

Based on the nature of activities

Types of Business Enterprises

A
  1. Service
  2. Merchandising
  3. Manufacturing
19
Q

Service Business

A

Services to clients for a fee

20
Q

Merchandising Business

A

Buys and sells goods without altering their original form

Maintains INVENTORY which are held for sale in the normal business operations

21
Q

Manufacturing Business

A

Buys raw materials, processes them into finished goods, and sells them at a higher price than the cost

22
Q

Based on ownership

Types of Business Enterprise

A
  1. Sole Proprietorships
  2. Partnership
  3. Corporation
  4. Cooperation
23
Q

Sole Proprietorships

A
  • Owned by one
  • Ends when the owner is no longer willing or able to keep it going
  • Owner is legally responsible for debts and taxes of the business. Creditors go to them when busines cannot pay debts.
  • The owner and the business’ income combined to compute the total tax responsibility of the owner to pay income taxes
24
Q

Advantages of Sole Proprietorship

A
  • Ease of entry and exit
  • Full ownership control
  • All profits go directly to owners same as suffers and losses
  • Tax savings
  • Few government regulations
25
Q

Disdvantages of Sole Proprietorship

A
  • Unlimited liability
  • Limitations in raising capital
  • Lack of continuity
26
Q

Partnerships

A
  • A business entity owned by two or more
  • Partnership Agreement made at the start that details the rights, obligations, and limitations of each partner
  • Liability Partnership Act - a general partnership that provides some limited liability for all partners
27
Q

Often used for service-type businesses including professional practices

A

Partnerships

28
Q

Advantages of Partnerships

A
  • Ease of formation
  • Additional sources of capital
  • Management base
  • Tax implications
29
Q

Disadvantages of Partnerships

A
  • Unlimited liability
  • Difficulty in transferring ownership
  • Lack of continuity
  • Limitations in raising capital
30
Q

Corporations

A
  • The only form of business that is a separate legal entity
  • Separate from owners
  • Has legal right to own property and do business in its own name
31
Q

Privately Owned Corporations

A
  • “Closely held corporations”
  • Limited to specific individuals
  • Stock not traded on an exchange
32
Q

Publicly Owned Corporations

A

Bought and sold on stock exchanges and OTC markets

33
Q

Stock

A

In the form of stock certificates, representing ownership of corporation

34
Q

Corporate Owners are called

A

Stockholders / Shareholders

35
Q

Stockholders / Shareholders are not personally responsible for debts or taxes. If they are unable to pay the bill…

A

stockholders can lose their investment = stockholders will not lose more than the cost of the shares of stock

36
Q

Advantages of Corporations

A
  • Limited liability
  • Unlimited life
  • Ease in transferring ownership
  • Ability to raise capital
37
Q

Disadvatages of Corporations

A
  • Time and cost in formation
  • More regulation
  • Taxes
38
Q

Cooperative

A
  • Owned by a group minimum of 15 serving as benefactors of business endeavors
  • Members can become part by purchasing shares
39
Q

Advantages of Cooperatives

A
  • Unlimited life
  • Ease in transferring ownership
  • Ability to raise capital
  • Democratic organization
  • Exempt from taxes, generally
  • Less regulations
40
Q

Disadvantages of Cooperatives

A
  • One member one vote policy
  • Members’ participation may be lacking
41
Q

Accounting vs. Auditing

A
  • Auditing starts when accounting ends.
  • Accounting - to show the performance, profitability, and financial position of an organization
  • Auditing - to reveal to which extent the financial statements of an organization are true and fair
42
Q

Accounting vs. Bookkeeping

A

Bookkeeping is the initial stage of accounting
Accountants direct and review the work of bookkeepers

43
Q

*

Accounting vs. Accountancy

A

Accountancy is the systematic body of knowledge that prescribes accounting principles followed during the accounting process.

44
Q

Financial Accounting vs. Managerial Accounting

A

Managerial accounting involves identifying, measuring, analyzing, interpreting, and communicating financial information to managers to help them set an organization’s goals.

Financial accounting involves recording and summarizing the stream of transactions and economic activity resulting from business operations and reporting it to investors and regulators.

45
Q

Primary Users

A

Investors and Creditors

FDNACCT (3 decks)

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