CH1: Acct in business Flashcards
Identifying activity
-observing sales
-acquiring knowledge
-identifying prices& quantity
recording activity
-recording
-logging
-Inputting
-entering
-measuring
-registering
communicating activity
-reporting
-analyzing
-interpreting
-preparing
Accting vs recordkeeping
acct- an info system that record, relays important info
recordkeeping-recording transactions
Internal users
Directly manages the organization
-managers
-CEO
-Employees
-customers
external users
does not directly in the organization and has limited acess to acct info
-shareholders
-creditors
-labor unions
-Board of directors
Types of accounting
External?
Internal?
1) Financial
2) managerial
financial accounting duties
-external auditing
-reviewing financial statements
Managerial accounting duties
-cost accounting
-budgeting
-internal auditing
-consulting with treasurer on cash flows
Tac accounting
-investigating tax fraud
-tax consulting
-enforcing tax laws
-estate planning
process for making ethical decisions
1) identify ethical concerns
2) analyze options
3) Make ethical decision
what are the three factors that push one to commit fraud (fraud triangle)?
-opportunity
-rationalization
-pressure
ethics
beliefs that distinguish right from wrong
what is prevention?
a more effective way to stop fraud than detection
what is an audit
examines whether financial statements are prepared using GAAP
what are internal controls
procedures to reduce fraud (physcial controls, etc)
what is GAAP
Set of accounting rules and practices
(generally accepted acct principles)
Who sets the GAAP rules?
FASB (financial acct standards board)
what is the SEC
govt agency that enforces proper use of GAAP
(security and exchange commission)
what is ISAB
international group that issues IFRS
Sabernes-Oxley
a U.S. law to protect investors by preventing fraudulent accounting
what are public accountants
acct. professionals who provide services to many clients
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
