CH1: Acct in business Flashcards by shreya Khatri

Identifying activity

-observing sales
-acquiring knowledge
-identifying prices& quantity

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recording activity

-recording
-logging
-Inputting
-entering
-measuring
-registering

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communicating activity

-reporting
-analyzing
-interpreting
-preparing

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Accting vs recordkeeping

acct- an info system that record, relays important info

recordkeeping-recording transactions

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Internal users

Directly manages the organization
-managers
-CEO
-Employees
-customers

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external users

does not directly in the organization and has limited acess to acct info
-shareholders
-creditors
-labor unions
-Board of directors

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Types of accounting
External?
Internal?

1) Financial
2) managerial

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financial accounting duties

-external auditing
-reviewing financial statements

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Managerial accounting duties

-cost accounting
-budgeting
-internal auditing
-consulting with treasurer on cash flows

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Tac accounting

-investigating tax fraud
-tax consulting
-enforcing tax laws
-estate planning

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process for making ethical decisions

1) identify ethical concerns
2) analyze options
3) Make ethical decision

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what are the three factors that push one to commit fraud (fraud triangle)?

-opportunity
-rationalization
-pressure

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ethics

beliefs that distinguish right from wrong

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what is prevention?

a more effective way to stop fraud than detection

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what is an audit

examines whether financial statements are prepared using GAAP

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what are internal controls

procedures to reduce fraud (physcial controls, etc)

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what is GAAP

Set of accounting rules and practices
(generally accepted acct principles)

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Who sets the GAAP rules?

FASB (financial acct standards board)

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what is the SEC

govt agency that enforces proper use of GAAP
(security and exchange commission)

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what is ISAB

international group that issues IFRS

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Sabernes-Oxley

a U.S. law to protect investors by preventing fraudulent accounting

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what are public accountants

acct. professionals who provide services to many clients

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what are the assumptions of accting? What are the principles of accting?

ASSUMPTIONS
-going concern
-time period
-monetary
-business entitity

PRINCIPLES
-full disclosure
-measurement (cost)
-expense recognition
-revenue recogniton

measurement (cost) principle

acct info is based on actual cost (cash or equal to cash value)

Revenue recognition principle

revenues is recognized when goods/services are provided and at the amt expected to be recieved

expense recognition principle

recording expenses incurred to generate revenue reported

full disclosure principle

a company reporting the details behind financial statements in the notes that would affects users decisions

going concern assumption

acct info presumes that the business will continue operating instead of being closed

monetary unit assumption

transactions/ events are expressed in monetary units

time period assumption

the life of a company can be divided into time periods (ex months)

business entity assumption

A business is accounted for separately from other business entities and its owner

sole propitiorship

-1 owner -owner is liable -no additional business taxes -not a separate legal entity -ends in owner deathc/choice

partnership

-2+ owners -no additional business taxes -partners are liable -not a separate legal entity -ends in partner death/choice

corportation

-1+ owners (shareholders) -additional business taxes -limited liability (shareholders not responsible) -separate legal entity -bus life is indefinite

LLC (limited liability corporation)

-1+ (called members) -no additional business taxes -limited liability (some members not responsible) -seperate legal entity -indefinite

Assets

resources that a company owns -cash -accounts receivable -supplies -equipment -land

Liabilities

creditors claims on assets -wages to workers -accts payable

equity

owners claims on assets -common stock -dividends -revenues -expenses

Accounting equation

Assets= Liabilities+ equity

Acct equation expanded

Assets = Liabilities +common stock-dividends + revenues - expenses

commonstock

inflows of cash and other assets for stock

dividends

outflows of cash/assets to shareholders

revenues

increase in equity from sales

expenses

decrease in equity from costs

net income

when revenue exceeds expenses

net loss

when expenses exceed revenue

order of financial sheets

1-income statement 2-statement of retained earnings 3-balance sheet 4-statement of cash flows

What goes on the income sheet

Revenues -expenses =net income/loss

What goes on the statement of retained earnings

beginning retained earning +net income -dividends =ending retained earnings

What goes on the income sheet?

revenue -expenses -net income/net loss

What goes on the balance sheet

LEFT SIDE Assets -cash -acct receivable -supplies -land -total assets =x RIGHT SIDE Liabilities =total liabilities Equity -common stock -retained earnings -total equity =total equity + liabuilities

how to find net income (loss) given assets and liabilites from beginning and ending year

1-find the equity for the beginning and ending. 2-use beginning equity and subtract any dividends expenses and add any revenues etc. 3) subtract ending equity from the balance

what goes in operating activities

expenses in cash income in cash

what goes in investment activtities

purchase of assets sale of assets

what goes in financial activities

stock payments dividend payments

how to find end of year equity given financial statement info sheet

beginning year equity +stock issuances +net income -dividends =end of year equity