chapter 1 Flashcards
accounting
info system that measures, processes and communicates financial info about an identifiable econ. entity
measures business activity
stores the data
the info is communicated to decision makers
business goals
liquidity - have enough cash available to pay debts
profitability - must earn enough revenue to cover costs plus have left over money
business activities
financing - obtaining capital from owners/creditors
operating - selling goods & services, employing workers, buying+producing goods&services,
paying taxes
investing - spending capital in productive ways (that achieve business goals)
buying/selling assets used in business
performance measures
indicate whether the managers are achieving their business goals/managing well - performance measures MUST align with business goals
management accounting
is oriented towards the needs od internal decision makers
provides managers + employees with ingo regarding performance & future expectations
financial accounting
is oriented towards the needs of external decision makers
provides info in financial statements, evaluating business goal avhievements
bookkeeping
bookkeeping is the mechanical and repetitive process of recording financial transactions & keeping financial records
accounting is the design of info systems that meet users’ needs
direct financial interest
investors (need info about profitability, liquidity etc)
creditors (need debt, equity, liquidity and profitability info to LOAN MONEY)
indirect financial interest
tax authorities
regulators
labour unions
investment advisors
customers & consumer groups
economic planners
business transactions
econ. events that affect the financial position of a business
- transactions are the raw material of accounting reports
- transactions must relate directly to a business entity
money measure
money is common to all business transactions
the monetary unit depends on the country in which the business resides
separate entity
a business is a separate entity, distinct from its creditors & customers & owners
sole proprietorships
owned by 1 person
records should be kept separate from owners personal interests
legally the same economic unit as the owner
unlimited liability
ends when owner wants it to or owner dies
partnership
more than one owner
unincorporated association, not legally separate from owners
unlimited liability
corporations
one or more owners/stockholders
legally separate from owners
owners can be separate from managers
limited liability
unlimited lifespan
